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UBS hit by warning on Swiss franc and negative rates

The logo of Swiss bank UBS is seen on a building in Zurich November 12, 2014. REUTERS/Arnd Wiegmann

By Joshua Franklin and Katharina Bart

ZURICH (Reuters) - UBS Group AG (UBSG.VX) has warned about the impact on profit of the surging Swiss franc and negative interest rates, while also disclosing another tax investigation in the United States involving wealthy clients.

Shares in UBS slid more than four percent to 15.42 francs by 1225 GMT (07:25 a.m. EST), despite the bank trebling its dividend from the previous year and saying it had made a solid start to 2015.

Switzerland's biggest bank said a sudden move by the Swiss central bank to abandon a cap on the franc, which sent the currency surging and is set to make life difficult for Swiss financial firms and exporters, will take a toll.

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

The bank said net profit for the fourth quarter of 2014 was 963 million Swiss francs ($1.04 billion), exceeding the 937 million francs analysts had forecast.

The profits led to what several analysts identified as a rare bright spot -- a 0.75 franc per share dividend in two separate payouts, three times more than the 2013 payout of 0.25 francs a share.


UBS said it faced a new investigation into the selling of certain securities that potentially violate tax law in the United States. It said it was cooperating with the U.S. authorities after it was approached last month but gave no further details.

UBS was hit by a bill last year of more than $1 billion to settle past scandals.

The behavior of global banks is under renewed scrutiny after Britain's HSBC Holdings (HSBA.L) admitted failings by its Swiss private bank that may have allowed some customers to dodge taxes..

One London-based UBS investor said the results laid bare several disconcerting headwinds including the threat of costly litigation, near-zero interest rates, and the continued appreciation of the Swiss franc.

But the biggest worry was UBS's continued troubles in the lucrative wealth management market –- seen as central to its future profitability as it pares back its investment banking.

"The first two factors are affecting much of the sector but our focus is on UBS's disappointing wealth management numbers - the poor inflows and falling margins," the London-based investor said.

Investment banking swung to a profit before tax of 367 million Swiss francs from a third-quarter loss on a healthier result from its equities business, but other parts of the group performed worse than in the previous three months.

The wealth management arm won 3 billion francs in net new money, less than a third of last quarter's result, and its margin on assets slipped. It also quietly dropped a profitability target of between 95 and 105 basis points.

UBS revealed it would slash another 1 billion francs off its spending, and said it would step up efforts to move jobs such as information technology to low-cost locations, but did not have any "emergency plans" to deal with the strong Swiss franc.

"Trying to predict movements of currency for example in the next two or three years is almost impossible," Chief Executive Sergio Ermotti said.

"So what we do today is something that we are doing regardless if the euro goes back to 1.20 or 1.25."

(Additional reporting by Sinead Cruise in London; Editing by David Holmes and Keith Weir)