UBS Suffers $2.7 bn 2012 Net Loss on Libor-Fixing Fines

Swiss banking giant UBS announced on Tuesday a net loss of 2.5 billion Swiss francs (2 billion euros, $2.7 billion) as fines from the Libor rate-fixing scandal weighed on results.

In the final quarter of last year UBS suffered a net loss of 1.8 billion francs when it booked provisions for the combined fines of 1.4 billion francs from regulators as well as restructuring costs.

The full-year net loss was higher than expectations, with analysts surveyed by the Swiss financial news agency AWP foreseeing on average UBS to turn in a loss of 2.2 million francs.

UBS had earned a net profit of 4.1 billion francs in 2011.

Shares in Switzerland's largest bank tumbled 3.7 percent at the opening bell, but after 30 minutes of trading had climbed back into positive territory.

Despite the 2012 loss UBS said it had made progress in executing its strategy to reduce its higher risk investment banking operations in favor of wealth management, and would recommend increasing its dividend by 50 percent to 0.15 francs per share.

In the fourth quarter of 2012 UBS's investment banking unit suffered a pre-tax net loss of 557 million francs, down from a loss of 2.8 billion francs in the previous quarter.

The wealth management unit posted a pre-tax profit of 398 million francs in the fourth quarter, down from 582 million francs in the third quarter.

UBS also announced it would buy back 5 billion francs worth of its bonds, which it said would lower its future funding costs and further improve its capital ratios.

"While progress was made on many issues during 2012, many of the underlying challenges remain at the start of the new year," UBS said.

"Failure to achieve further sustained and credible improvements to the eurozone sovereign debt situation, European banking system issues, unresolved U.S. fiscal issues, ongoing geopolitical risks and the outlook for growth in the global economy would continue to exert a strong influence on client confidence and, thus, activity levels in the first quarter of 2013," the bank warned.

U.S., British and Swiss authorities late last year hit Switzerland's largest bank with $1.5 billion in fines -- the second-largest banking penalty ever -- for massive misconduct in the setting of the Libor rate.

That rate is used as a benchmark for global financial contracts worth about $300 trillion and affects financial products worldwide such as student loans and mortgages.

Despite the devastating quarterly and annual results, UBS said its board would propose a 50-percent dividend increase for its shareholders compared to 2011 to 0.15 francs a share.

In a separate announcement, the bank meanwhile said it planned to buy back up to 5.0 billion francs worth of certain outstanding euro, dollar and lira bonds, in a bid to reduce its funding needs going forward.

Sarasin bank analyst Rainer Skierka meanwhile hailed UBS's progress in building up capital ratios and reducing risky assets.

"UBS is on track to achieve its goals, and this has also been underlined with a 50-percent increase in its dividend," he told the Dow Jones Newswires.

"It is also making progress on its efficiency programs and continues to strengthen its risk control framework," he said.