UBS profit may trail US peers on litigation reserves

UBS Group AG may this week report earnings that trailed US peers as litigation charges continue to weigh on Europe’s lenders and their retreat from debt trading limits the boost from higher interest rates.

Switzerland’s largest bank will probably report a 21 per cent increase in pretax profit in the fourth quarter to 282 million francs ($282 million), according to George Karamanos, a London-based analyst at Keefe, Bruyette & Woods. That compares with a 64 per cent average gain reported this month by five Wall Street peers including Goldman Sachs Group Inc., which saw pretax profit spike 217 per cent. UBS’s own survey of 22 analysts is for an even lower increase of 6.4 per cent.

The Zurich-based lender is the first of Europe’s big global banks to report fourth-quarter earnings. Many of them, like Credit Suisse Group AG and Deutsche Bank AG, have been forced to cut costs and reduce capital-intensive debt trading as negative interest rates erode revenue and misconduct charges weigh on their finances. Sergio Ermotti, UBS’s chief executive officer, retreated from large parts of investment banking in late 2012, seeking a more stable, less risky source of income in wealth management.

Below are three key figures analysts will be looking at when UBS reports earnings on Friday.

Analysts surveyed by UBS expect the bank to set aside 544 million francs this quarter for expenses tied to a US investigation into its sales of mortgage securities before the financial crisis. Credit Suisse and Deutsche Bank last month agreed to a combined $12.5 billion in settlements to end similar investigations. UBS is one of a handful of European lenders that have yet to settle official probes of their US mortgage business.