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UBS Fares Better Than Credit Suisse on Legal Risks: JPM

UBS AG is a better bet than its Zurich neighbor Credit Suisse Group AG even though it’s more exposed to legal risks, according to JPMorgan Chase & Co. analysts.

UBS could nearly quadruple its litigation reserve to 7 billion Swiss francs ($7.8 billion) by 2016 and still have a common equity ratio of 13 percent, Kian Abouhossein and Amit Ranjan, banking analysts at JPMorgan in London, said in a note today. They included a dividend yield of 10.3 percent in this estimate.

UBS had 1.8 billion francs in reserve for legal matters at the end of the first quarter.

By contrast, Credit Suisse reported a common equity ratio of 10 percent at the end of March. Factoring in a $2.6 billion fine to settle a U.S. tax-evasion case in May, that figure drops to 9.3 percent, the lowest of the 17 global investment banks tracked by Bloomberg Industries.

“On litigation, in our view CSG appears better placed than UBS,” Abouhossein and Ranjan said in their note. “However, UBS has sufficient cushion in our estimates to take litigation charges.”

Credit Suisse will generate 48 percent of investment banking-related revenues from equities in 2015, according to Abouhossein and Ranjan, compared with 68 percent at UBS. As a result, the analysts said they “see UBS business mix as much more attractive.”

That makes Switzerland’s second-largest bank more dependent on fixed income, an area of investment banking that the analysts said is shrinking.

UBS, Switzerland’s biggest bank, also has more estimated future revenue from “asset-gathering-geared activities” relative to total income. Credit Suisse will have 55 percent of revenue from these businesses in 2015, the analysts estimate, compared with 68 percent for UBS.

“UBS again is more attractive than CSG,” Abouhossein and Ranjan said.

UBS also has an advantage in wealth management because of its stronger position in Asia, which they view as the fastest-growing region, and in the U.S., the men said.

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