UBS seen cutting risky assets as charges push it to loss

ZURICH Tue Feb 5, 2013 12:02am GMT

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ZURICH (Reuters) - UBS's (UBSN.VX) progress in cleaning up its balance sheet will be the focus of attention when the Swiss bank posts fourth-quarter results on Tuesday, which it has already warned will show a big loss due to one-off charges.

Switzerland's largest bank by market capitalisation is, like most rivals, seeking to reduce its risky assets, such as loans which might not get repaid, in a bid to meet tougher regulations aimed at preventing a repeat of the 2008 financial crisis.

It has set a target of reducing so-called risk-weighted assets (RWAs) to 200 billion Swiss francs ($222 billion) by 2017, compared with 301 billion at the end of the third quarter.

Some analysts believe UBS's current rate of progress suggests it could meet that target earlier, raising the prospect of a step up in dividends sooner than the current guidance of 2015.

"Extrapolating the fourth-quarter disposal rate into 2013 implies UBS could reach its 200 billion Swiss franc RWA target by 2013," said Liberum Capital banking analyst Cormac Leech. He rates UBS shares a "buy," with an 18 franc target price.

UBS is offloading RWAs, key to determining the amount of capital a bank needs to hold, in several ways, including shutting down trading desks and closing out or selling positions.

UBS's fourth-quarter results will be dented by a $1.5 billion fine for rigging Libor and other benchmark interest rates, as well as restructuring charges linked to a plan to cut 10,000 staff and dramatically shrink its fixed-income unit to focus on private banking.

Charges to account for how UBS's own debt is valued will also weigh on the results.

Because those big financial hits were disclosed late last year, investors' focus is likely to be on UBS's progress in cleaning up its balance sheet as well as its performance in January, which could give an indication of whether its new strategy is bearing fruit.

Last Thursday, Deutsche Bank (DBKGn.DE) struck an upbeat tone for January business.

UBS's hometown rival Credit Suisse (CSGN.VX), where investment banking makes a larger share of profits, is pursuing a very different strategy. Credit Suisse is holding fast to its securities unit, even as it adapts to tough capital rules that make it harder to turn a profit from trading.

Credit Suisse reports quarterly results on Thursday.

So far, investors have shown a preference for Credit Suisse's stance, sending its stock 23 percent higher since November, when UBS unveiled its strategy. UBS's shares, meantime, have gained 15 percent, only just outpacing a 13.5 percent rise in the Stoxx 600 European bank index .SX7P.

Analysts in a Reuters poll expect UBS to swing to a fourth-quarter net loss of 2.078 billion francs, from a 319 million franc profit last year.

Fresh client money at UBS's flagship private bank is expected at 6.84 billion francs. <ID: nL5N0B0GJO>

In October, UBS said it was putting away funds for a 2012 shareholder payout following its first post-crisis dividend for 2011, a modest 0.10 francs a share. The bank aims to pay out more than 50 percent of profits to shareholders from 2015.

($1 = 0.9029 Swiss francs)

(Reporting by Katharina Bart; Editing by Mark Potter)

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