UBS has issued a warning regarding profit impact from the increase to the value of the Swiss Franc coupled with negative interest rates and the ongoing tax investigation in the United States. Shares in the company have slid as of late despite the issuance of triple the dividend paid out a year prior. Earlier in the year, the Swiss National bank lifted the cap on the Franc which sent it’s value soaring against other currencies including the Euro and Dollar. The subsequent financial outcome this will have on UBS will directly affect their projections and profitability.
Projection woes come on the back of an investigation from the United States, as they look into potential tax law violations from UBS. Allegedly UBS helped U.S. citizens evade taxes within Swiss banking neutrality. These investigations are becoming increasingly common as England’s HSBC admitted to similar allegations of tax evasion through Swiss mediums.
Investors are growing increasingly concerned with UBS and the stormy waters it faces in the midst of the Franc appreciation, low interest rates, and a struggling wealth management division. Wealth management is an extremely profitable division for many banks and recently UBS has provided less than impressive numbers in the category.
The wealth management division of UBS netted 3 billion Francs in new money, which accounts for less than a third of the previous three months earnings. Profitability targeting also plunged from management to between 95-105 points.
In an effort to cut costs the bank announced a 1 billion Franc cost cutting effort. The strategy for becoming more lean will include moving MIS functions to low-cost sites. Such plans are signs that the bank is preparing to weather the Franc appreciation storm.
Attempting to forecast the Franc value on a long term time scale is almost as impossible as judging the stock market. The volatility will continue until things settle into their true value. Arbitrage may be driving valuation into skewed areas. While UBS waits for the currency crisis to settle, it will be taking steps to prepare itself for the future regardless of the Franc jumping around.
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