A surprise outflow of funds and weakening margins at UBS's flagship wealth management business overshadowed the Swiss bank's best annual results since 2010 and a higher than expected dividend payout. The bank's shares fell nearly 9 percent on Tuesday to their lowest in almost a year after it reported a fourth-quarter net new money outflow of 3.4 billion Swiss francs ($3.3 billion) at its wealth management arm, as an exodus from emerging markets and Europe offset inflows from Asia and Switzerland.
Finance chief Kirt Gardner said some big clients in markets such as Russia, the Middle East and Brazil - many of them in the energy sector - had needed liquidity amid economic turmoil and plunging oil prices, and so had dipped into their wealth. But he and Chief Executive Sergio Ermotti stuck to the bank's goal of 3-5 percent growth in net inflows of new money at the wealth management arm, which UBS has made its pillar.
UBS has reshaped its strategy in the wake of the global financial crisis, slimming down its investment bank and focusing more on its wealth management business, which now accounts for over half of its operating profit and is the world's largest. The strategy has been paying off. Its stock rose 14 percent in 2015, outpacing a flat European bank sector index. But market ructions have showed few banks are immune to tumultuous times when rich clients retreat to the sidelines, depressing revenue at banks like UBS that trade for them. Ermotti told reporters UBS could have avoided the outflow but chose not to chase business that would be unprofitable in the long-term.
"There is enough growth for us out there. Discipline and focus is the winning formula," he said. Ermotti said headwinds from volatile markets in early 2016, and the relative strength of the Swiss franc, meant it was too early to make revenue forecasts this year. But the bank will stick with its plan to invest more in its Chinese business and double its number of clients there, despite the country's slowing economic growth and wild gyrations in its stock market.
Net profit at Switzerland's biggest bank advanced to 6.20 billion Swiss francs in 2015, topping the 5.75 billion francs analysts had forecast in a Reuters poll. Fourth-quarter net profit of 949 million francs easily beat expectations, but was flattered by one-off factors. The bank proposed raising its 2015 dividend to 0.85 Swiss franc per share, including a special payout of 0.25 francs, just ahead of analysts' forecasts. It was the second consecutive year of a special payout, but executives said investors should not get used to them. The special payout for 2015 hinged on gains from deferred tax assets that are unlikely to be as large in the years ahead.
The bank renewed its pledge to pay out more than half of net profit to shareholders. UBS's strong earnings have bucked the trend at most of its European peers, many of which trail the Swiss bank when it comes to overhauling their investment banks. Rival Credit Suisse, in the midst of this process, reports results on Thursday. "UBS is a well restructured bank but is not immune to an Asia slowdown in our view," J.P. Morgan Cazenove analysts wrote in a research note, keeping a neutral rating on the stock. UBS said it saw low levels of client activity and pronounced risk aversion in the fourth quarter, when it booked a net tax benefit of 715 million francs thanks to revaluing deferred tax assets.
Regulatory costs will remain a burden, it said. UBS stock had been trading at around 11 times 12-month forward earnings, a slight premium to rival Credit Suisse but a discount to Julius Baer, according to StarMine, which weights analyst estimates by their previous forecasting accuracy.
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