UBS Settlements Boost Outlook for Higher Profit, Dividend

“A slap on the wrist.” “Things are looking up.” “Clearly better than expected.”

UBS Group AG got off easy, analysts said after it announced a deal Wednesday to end U.S. investigations of its role in currency rigging.

The Swiss bank, the first to cooperate in the probe, was granted immunity, meaning it won’t face criminal charges that could damage its reputation and threaten some operations in the U.S. It was ordered to pay the Federal Reserve $342 million in civil fines.

Investors welcomed the news. Shares were trading 2.9 percent higher at 1:21 p.m. in Zurich, having gained 22 percent this year.

Kian Abouhossein and Amit Ranjan of JPMorgan Chase & Co, who had estimated $3.2 billion in penalties, said the settlement eliminates a major worry for investors. Factoring in the settlement, they estimate that the dividend yield, payout as a proportion of share price, will rise to 6.3 percent by 2017. The average dividend yield of the 45 banks in the Bloomberg Banks Index is estimated at 5.05 percent in 2017.

“In one line: things are looking up,” said Alevizos Alevizakos, an analyst at Keefe Bruyette & Woods Inc. in London. “The only question was what happens to litigation and now that is off the picture.”

UBS outperformed many global banks in the first quarter, posting an 88 percent increase in net income from a year earlier as the bank benefited from an increase in trading. All key divisions reported profit that was higher than analyst estimates.

‘Exceptional’ Cooperation

UBS has attracted investors with a promise to increase dividends over the years as the bank completes the shift away from investment banking, the business at the center of the currency investigation, to wealth and asset management. The bank plans to pay out 50 percent of profit to shareholders as long as its capital ratio remains above a certain threshold.

Andreas Venditti, a Zurich-based analyst at Vontobel Holding AG, said estimates for profit and dividends may increase.

Although UBS was less fortunate in the U.S. probe over interest rate manipulation, that settlement too removed an issue that had been causing investors uncertainty.

In 2012, the U.S. Justice Department declined to prosecute the bank for manipulating the London interbank offered rate, or Libor. It cited “exceptional” cooperation that “significantly expanded and advanced the criminal investigation.” The agreement was conditional on the bank not committing another U.S. crime for two years. The currency probe began months later.

On Wednesday, the bank said the Justice Department exercised its “sole discretion” to terminate the nonprosecution agreement and that it would plead guilty to fraud and pay $203 million in additional fines to resolve the case.

While the guilty plea was disappointing, the damage was contained, Christopher Wheeler, a London-based analyst at Atlantic Equities LLP, said in an interview with Bloomberg Television on Wednesday. “It’s been quite mild. It’s almost felt like a slap on the wrists.”

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