UBS Loss Narrows, Capital Ratio Slips
Swiss banking giant UBS (UBS) posted a net quarterly loss of 1.98bn in Swiss Francs (CHF). This is equal to $1.75bn and represents a narrowing from the $8.45bn (CHF9.56) loss taken in the previous quarter. A $530m (CHF600m) goodwill impairment charge relating to the sale of UBS Pactual, in concert with risk positions -- resulting from businesses UBS has either exited or is exiting -- drove the quarter's loss. Nonetheless, the company reduced its risks and balance sheet, trimming its risk-weighted assets by 8.1% in the quarter. It also began cutting operating expenses, which UBS said it expects to decrease by $3.09bn to $3.54bn (CHF3.5bn to 4bn) by year-end 2010. "There has been an improvement in market sentiment during the first quarter, with a strong rebound in global stock market indices since early March, but the credit markets improved only partly and trading in complex financial products remains illiquid," UBS officials said in the earnings statement. "The strong influence that government policy has on the market environment was clearly demonstrated in the first quarter as investors became less risk averse," company executives added. "However, the real economy has continued to deteriorate, and this is expected to have negative implications for credit-related provisioning in coming quarters." The company's BIS tier 1 ratio stood at 10.5% while its BIS capital ratio was 14.7% in the quarter, both down from 11% and 15% respectively in the previous quarter. Despite the quarter-over-quarter slip in the ratios, the BIS tier 1 still held above the 10% UBS had previously predicted. Read the earnings statement. The company's loss was not wholly unsuspected, as UBS warned in mid-April it would lose $1.75bn and cut its head count by 11%. “The loss stems from a negative contribution totaling roughly CHF3.9bn due to losses on previously disclosed illiquid risk positions, credit loss expenses and valuation adjustments on the last positions transferred to a fund controlled by the Swiss National Bank,” UBS officials said in its April media release. UBS shares traded on the New York Stock Exchange at $14.21, down 2.5% in mid-morning trading when this story went to press. Write to Diana Golobay at firstname.lastname@example.org. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.