Realistic Lower than Low Legal Costs ensure Profits for UBS
The biggest bank of Switzerland, UBS AG recently reported 4th quarter profits as it surpassed the estimated projections. The 4th quarter has been especially profitable for the service, with several factors acting to its advantage. The main division of the company registered higher profits than the last quarter. Tax gain parameters and low legal costs also contributed to the success of the service. Spurred by the profitable success, the company plans to raise its dividend by an overwhelming 67% for 2013.
The Swiss bank was in the centre of legal battles in 2012, as international banking authorities imposed penalties on the allegations of trying to rig global interest rates. The total loss undertook by the company in paying fines and fighting court cases amounted to 1.9 billion francs. However, the company recovered greatly in 2013 as its net income for the year was about the double of the amount projected by analysts. While experts estimated a net income of 442 million francs, the company recorded a net earning of 917 million francs, especially derived from the last 9 months of 2013.
Following the penalties and legal battles, UBS CEO Sergio Ermotti scaled down its investment bank services to focus primarily on wealth management parameters. As the legal costs subsided, a tax bonanza waited for the company. The total tax gain amounted to 470 million. The dual gain enabled the bank to elevate the common utility ratio within the Basel III capital standards to 12.8 percent. This also entails good news for shareholders as CEO Ermotti commits to delivering more than 50% of profits to shareholders if the common utility ratio attained the 13% milestone. The immediate results of this gain were evident as UBS shares leaped by 6%, registering the highest intraday gain after April 30. The stock is available at 8.8 % increased price this year.
Leveraging on the incredible success, the company plans to raise its dividends bar for 2013 to 25 centimes a share instead of 15. The dividend payout counts up to 30% of the full-year net income of the bank, standing at 3.7 billion francs. The company had to encounter a loss of 2.48 billion francs in 2012, because of the legal concerns and the penalties levied on the service. Officials from the bank were able to arrive at a negotiated arrangement with the banking regulator, which asked the service to boost its litigation capital requirements. The bank now has to set aside 18 percent less than the amount expected of them by the regulator.