UBS stock drops as it warns on impact of Swiss franc strength

Shares in UBS Group traded lower on 10 February after the lender warned over the impact of the surging Swiss franc and negative interest rates in Switzerland and the eurozone.

Shares in UBS were down 3.35% by 09:55 CET in Zurich, after Switzerland's biggest bank said that the recent unexpected move by the Swiss National Bank to abandon a cap on the franc could hit future profits.

UBS's stock dropped even after it promised to treble its full-year dividend, its biggest payout to shareholders since the financial crisis, and its comments that it had logged a "solid" start to 2015.

UBS, in a statement, said it will pay shareholders 0.75 francs per share for 2014 in two separate payouts, three times more than the 2013 payout of 0.25 francs apiece.

The profit warning came as the bank said fourth-quarter profit rose 5%, buoyed by a significant tax benefit and stronger earnings at its investment bank, which swung to a profit before tax of 367m Swiss francs ($397m, €350m, £261m) from a third-quarter loss.

UBS's net profit for the quarter ended 31 December, 2014, rose to 963m Swiss francs ($1.04bn, €919m, £684m), from 917m francs a year ago, thanks to a net tax gain of 493m francs.

The latest profit figure exceeded the 937m francs forecast by analysts in a Reuters poll.

UBS said in the statement: "...recent moves by the Swiss National Bank to remove the EUR / CHF floor and by the European Central Bank to increase its balance sheet expansion via quantitative easing have added additional challenges to the financial markets and to Swiss-based financial services firms specifically.

"The increased value of the Swiss franc relative to other currencies, especially the US dollar and the euro, and negative interest rates in the eurozone and Switzerland will put pressure on our profitability and, if they persist, on some of our targeted performance levels."

SNB shocker

Last month, the Swiss central bank shocked the financial markets by scrapping a three-year-old cap on the franc against the euro and lowering interest rates, which boosted the franc and is set to make life difficult for Swiss financial firms and exporters.

UBS fines

UBS's 2014 results were hit by money spent to resolve investigations into past scandals, even as new legal woes surfaced.

In November 2014, UBS agreed to pay 774m francs to UK, US and Swiss authorities to settle a probe into the attempted manipulation of foreign exchange rates.

In July 2014, it booked a near $300m charge mainly to settle allegations that it helped wealthy Germans evade taxes.

UBS paid $780m in 2009 to settle a US Department of Justice tax-evasion probe.