UBS says no dividends for some time, shares fall

UBS says no dividends for some time, shares fall

Zurich: Swiss bank UBS, said on Thursday it did not expect to pay dividends for some time in order to preserve capital to meet Basel III rules, sending its shares down 2 percent in early trading. Europe’s largest wealth manager by assets had no plans to raise capital but would take steps to reduce its risk-weighted assets (RWA) under the new rules, which it expected to meet by 2013, UBS chief financial officer John Cryan said during a presentation at the Bank of America Merrill Lynch financials conference on Thursday.

In July, Cryan said the bank planned to retain dividends mid-term to boost core capital.

“The fact they can meet capital requirements through retained earnings is evident. Our concern is more with the implications on funding costs and on achievable returns for the investment bank," said Chevreux analyst Christian Stark.

Shares were 1.4% lower at 0845 GMT, against a 0.9% dip Stoxx 600 European banks index and a 1.2% fall in Swiss rival Credit Suisse.

UBS said it had already made substantial progress in reducing risk by decreasing leverage, improving risk management and governance and returning to profitability.

The bank added it is well positioned relative to its peers to meet the challenges of Basel III.

Under current Swiss rules, UBS and Credit Suisse are required to hold twice the Basel II minimum capital requirement.

However, new Basel III set a tougher standard for the quality of capital as well as the assessment of risks on a bank’s balance sheet.

UBS needed a government bailout during the credit crisis but had built its Tier 1 capital ratio to a robust 16.4% by the end of the first half of 2010 in preparation for stricter capital requirements.

Risk weighted assets

The heads of main Swiss rival Credit Suisse and top British and French banks Barclays, BNP Paribas and Societe Generale said on Wednesday they could meet tighter capital rules without a rights issue by using their own profits.

The main yardstick for Basel rules set to come into force by 2019 is a core capital ratio of 7%.

Many banks’ core capital ratios are already above this but the Basel III regime is much stricter on what can be counted as core capital, prompting fears of more rights issues in the sector.

UBS said that when applying Basel III standards, its RWA would have been around 400 billion Swiss francs ($406 billion) at the end of June, compared to 205 billion francs under Basel II.

“Medium-term I’m fairly confident we can take that 400 result down to closer to 300," Cryan said. “We are sort of on track to capitalise 300 still and hopefully as a result of Basel II, we’ve actually been given a little more time in which to do it."

The new capital requirements are key to Basel III standards aimed at reducing the possibility and severity of future financial crises and making the banking system more stable through moderated risk taking and better loss absorption.