UBS to pay half of profits in dividends to shareholders
UBS will start paying out half of its profits to shareholders this year, its chief executive has said, and the Swiss bank looks set to become one of the highest dividend payers in a sector still grappling with the aftermath of the financial crisis.
Three years after joining UBS, Sergio Ermotti signalled in an FT interview that the bank will this year reach one of the prime goals of its radical restructuring by increasing the level of dividend payout from 30 to at least 50 per cent.
Such a payout ratio has been first flagged as a target in late 2012, when the investment bank’s history of outsized losses and a rogue trading incident prompted management to slash 10,000 jobs and wind down most bond trading businesses.
UBS has never given a timeframe for the target other than saying it would be contingent on the bank reaching a 13 per cent core tier one ratio – a crucial gauge for balance sheet health.
The target was narrowly missed with 12.8 per cent last year – still one of the highest ratios of large global banks – after the Swiss regulator Finma forced the bank to set aside more capital for future legal risks.
It comes as investors have shifted their focus away from the downsizing of the investment bank towards an expectation of higher dividends and better returns in its wealth management unit, the largest globally by assets under management.
“Ideally I hope over the next few years, the balance between managing legacy, managing today and managing tomorrow can be adjusted,” Mr Ermotti said.
Analysts at JPMorgan and Morgan Stanley forecast the bank to pay out 100 per cent of profits as dividends either from next year or 2016 as they say the business is generating far more cash than the bank can reasonably invest.
“This is where the bank sector is going,” said Kian Abouhossein, analyst at JPMorgan. “There is going to be lower returns and less growth so the way to keep your shareholders happy is to pay out a lot.”
Analysts liken UBS to the Nordic model, where some lenders including Swedbank and Nordea have either reached or are on their way towards a 75 per cent payout mark in a well-capitalised, low growth but high-return “utility” banking strategy.
Some of UBS’s largest European rivals are still at early stages of multiyear restructurings, impeding their ability to pay high dividends.
Deutsche Bank and Barclays are forecast by a consensus of analysts to pay out 25 and 33 per cent respectively this year according to Berenberg.
A number of US peers’ payout plans are still slowed down by their regulator with ratios often below 30 per cent.
UBS’s share price has no longer outperformed the sector in the past 12 months as investors still see risks in the wind-down of its legacy assets and the bank’s host of litigation issues such as the probe into alleged forex market rigging.
“Today, and for the foreseeable future, the biggest risk banks will continue to have are legacy issues related to operational and conduct topics,” Mr Ermotti said.