UBS tempered dividend expectations until after it has put one of its biggest legal scandals behind. It is expected to pay billions to settle allegations it mis-sold mortgage bonds in the run-up to the financial crisis.
The Swiss bank has left almost every vestige of a bailout in 2008 behind: its private bank has long stanched massive outflows, the bank has replenished its severely depleted capital, its investment bank is dramatically scaled back and armed with less risk, and the bank has bought back a pool of once-toxic assets that had been handed to Switzerland's central bank to manage.
One of the last remnants of UBS before and after the crisis remains, and the bank indicated on Monday that it will burden shareholders for some years to come.
RMBS Misdeeds
The Zurich-based lender is on the hook with U.S. regulators over claims that it misled mortgage bond investors before and during the financial crisis.
A recent settlement for Goldman Sachs over similar conduct – packaging, securitizing, marketing and selling residential mortgage-backed securities, or RMBS – gives a view of what awaits UBS.
Billion-Dollar Fine
The U.S. investment bank paid $5 billion in April to settle the justice probe, which seeks to make amends for investors who suffered billions of dollars in losses.
On Monday, UBS' finance chief Kirt Gardner said «once we have all that behind us, it really puts us in a really, really strong position to consistently return capital at attractive levels to our shareholders,» according to «Reuters».
In other words: it will get worse before it gets better.
CS, Deutsche Also Face Fines
Gardner was referring to the legal cases including RMBS as well as tougher capital requirements from international regulators, which has been dubbed «Basel IV» even though they haven't been launched yet and don't have an official name.
Credit Suisse (CS) and Deutsche Bank are also implicated in the RMBS probe, and face a similar settlement. Of the three banks, Credit Suisse is seen as most vulnerable due to its current ill health and deep restructuring.
UBS is committed to paying at least 50 percent of its net profit to investors, provided it has fulfilled capital requirements. The bank already meets rules which fully come into effect in 2019.
