UBS Group AG fell the most since September after the bank pushed back profitability targets for the third time in two years and warned of "substantial additional costs" stemming from new capital rules.
While third-quarter profit beat analyst estimates on one-time gains, income from managing money for the rich declined, the bank said on Tuesday, and UBS added fewer funds than forecast. Switzerland's biggest bank is reorganizing management and named Kirt Gardner the new chief financial officer, replacing Tom Naratil who is taking a role in wealth management, the bank also said.
Three years into his strategic overhaul of the firm, Chief Executive Officer Sergio Ermotti is grappling with stricter capital rules at home and a deterioration of the economic outlook in regions in which it's seeking to expand. Growing buffers against financial shocks may leave less available to shareholders just as the firm has started increasing dividends.
"The push-out on profitability is not helpful for dividend growth," said Martin Moeller, who manages about 2.2 billion Swiss francs ($2.2 billion) in equities at Union Bancaire Privee. "Although this is not a massive cut to earnings, UBS will not be the capital return story people want to see."
The shares fell 4.3% to 19.17 francs, paring this year's gain to 12%.
'Very Challenging'
The bank delayed its goal of returning 15% on tangible equity by a year, citing the economic outlook and the increased cost of regulation. Under Swiss rules announced last month, UBS and Credit Suisse Group AG will need to have a leverage ratio of 5%. To comply they will have to issue costly debt, causing substantial incremental cost, Naratil told analysts.
UBS also increased its target for total risk-weighted assets to 250 billion francs from 200 billion francs, signaling capital will have to rise. The current tally stands at 216 billion francs. Deutsche Bank AG and Credit Suisse said last month they expect risk-weighted assets to increase as regulators apply more charges and change the way risk is calculated.
