- Title: UBS ups reserves for U.S. mortgage case, forecasts tough markets
- Date: 28th October 2016
- Summary: LONDON, ENGLAND, UK (FILE) (REUTERS) VARIOUS OF EXTERIOR OF ROYAL BANK OF SCOTLAND, LONDON OFFICES RBS SIGN/LOGO
- Embargoed: 12th November 2016 11:10
- Keywords: Bansks UBS RBS BNP Paribas mortgages reserves settlements charges
- Location: LONDON, ENGLAND, UK + PARIS, FRANCE + SWITZERLAND
- City: LONDON, ENGLAND, UK + PARIS, FRANCE + SWITZERLAND
- Country: Various
- Topics: Company News Markets,Economic Events
- Reuters ID: LVA00555X4EQ5
- Aspect Ratio: 16:9
- Story Text: UBS increased reserves for penalties tied to mis-selling residential mortgage-backed securities (RMBS) by more than $400 million to $1.405 billion as it posted an 11 percent rise in third-quarter pre-tax profit.
The Swiss bank made the disclosure in its quarterly report on Friday (October 28), following news last month that the U.S. Department of Justice had demanded a $14 billion fine from Deutsche Bank in a similar investigation.
This was far more than analysts had expected and prompted fears UBS, the world's biggest wealth manager, could also face a stiffer penalty.
"For UBS there are a number of legacy issues largely. The legal ones and also the changes in regulation which appear to be quite onerous on UBS and other Swiss lenders which are not helping a bank which is trying to restructure rapidly to meet the changing demands of international banking, so essentially that's why they've reported another weak result," said Ken Odeluga, Market Analyst, City Index.
UBS's pre-tax profit for the three months to end-September rose 11 percent year on year to 877 million Swiss francs ($883 million), ahead of market forecasts, thanks to a strong business in the Swiss market and cost cuts.
Nevertheless, UBS maintained its gloomy outlook amid negative interest rates in Switzerland, cautious client activity and economic uncertainty.
The bank's shares were indicated 1.8 percent higher in pre-market business.
Higher misconduct costs and restructuring charges led to a third quarter loss at Royal Bank of Scotland, casting fresh doubts on when the government will recoup its 2008 bailout cash.
The Edinburgh-based bank, which is still more than 70 percent owned by the British taxpayer, reported a loss attributable to shareholders of 469 million pounds ($571 million), compared with a profit of 940 million pounds, boosted by the sale of U.S. unit Citizens, in the same period last year.
Friday's loss was more than twice the 231 million pounds estimated by analysts, according to a poll supplied by the bank.
In a further sign of the many problems still facing Chief Executive Ross McEwan, RBS also said it would miss an end-2017 deadline to sell its Williams & Glyn branch network, which was a condition of its 2008 state rescue.
The bank's seven-year struggle to sell the unit accounted for 301 million pounds of a 469 million pounds restructuring charge booked during the quarter, it said.
McEwan is in the midst of a vast, multi-year restructuring of RBS, which includes asset sales, job cuts and multi-billion dollar charges to settle litigation and pay fines for regulatory breaches.
It said that 2015 and 2016 would be noisy as it works through legacy issues and transforms the bank for customers. These latest results reflect that noise.
The losses were partly driven by a fresh 425 million pound misconduct charge and an 82 percent year-on-year rise in third quarter impaired loans to 144 million pounds.
Investors cheered higher-than-expected total income of 3.3 billion pounds, as RBS stepped up mortgage and business loans to maintain its status as Britain's biggest corporate lender.
Shares opened more than 3 percent higher on Friday but lost much of their early gains to trade flat at 0818 GMT.
But while the near-term performance impressed some, others were less optimistic for the future.
"I think many banks like RBS, Lloyds, Deutsche, UBS, Standard Chartered would rather be completely past the stage where they're still negotiating with, usually the US Department of Justice and other regulators as well. It is what it is, they need to get through this. Basically all of their share prices won't be calmed until we have clarity on the litigation front and what the settlements going to be," he added.
BNP followed U.S. rivals and Britain's Barclays in reporting strong revenue in bond trading.
The French bank's share price has outperformed Societe Generale, Credit Agricole and Natixis so far this year, as it turned the page on past troubles and focused on a transformation of its investment bank.
"BNP Paribas is amongst the strongest lenders of its size and its kind but never-the-less a large international French-based lender in IRP or ZIRP interest environment and it does also have some legacy issues too. But never-the-less it was able to capitalise on the rebound in bond trading and also trading in general due to the volatility we had in the summer more so than some of its rivals. Largely because I believe it is at a much further stage in the regulatory settlement front than some of its rivals," said Odeluga.
BNP Paribas, which said it ranked number 1 in euro bond issuance and number 9 for all international bonds, said it had seen a pick-up in fixed income, currencies and commodity (FICC) in Europe and the Americas after a lackluster start to the year.
It also said it had embarked on saving costs in all regions in its corporate and institutional banking business, as part of a plan announced earlier this year.
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