2013.07.2301:39:21UTC+00UBS reports greater earnings, U.S. mortgage bond settlement

UBS AG (UBSN), Switzerland’s biggest bank, reported a hike in second-quarter earnings and stated it’s close to a settlement over U.S. mortgage-backed bond sales.

UBS moved higher in Zurich exchange after displaying net income of about 690 million Swiss francs ($734 million). Earnings jumped from 524 million francs a year ago and beat the 586 million-franc mean estimate of four analysts surveyed this month by Bloomberg. UBS attracted about 12.8 billion francs in net new funds to its wealth management units and increased its capital buffer, the bank said.

Greater Capital

UBS’s operating profit before tax in the quarter amounted to about 1.02 billion francs and its common equity ratio under fully-applied Basel III rules rose to about 11.2 percent from 10.1 percent at the end of March. The bank will publish full quarterly results July 30.

Mortgage Suit

Knight Vinke Asset Management LLC, a shareholder based in New York, said in a statement today it remains “concerned that UBS’s very valuable wealth management franchise continues to be buffeted by investment banking related losses.” In an open letter in May, Knight Vinke said UBS should spin off its investment bank.

Tax Deal

“We believe UBS has settled with the FHFA to move on quickly from its legacy issues,” Kian Abouhossein and Amit Ranjan, London-based analysts at JPMorgan Chase & Co., said in a note. “While litigation remains an overhang for the sector overall, in our view the settlement does suggest relatively lower litigation risk for UBS going forward.”

The full cost of the settlement, which still needs final approvals, would be covered by previous provisions and those taken in the second quarter, UBS said. At the end of 2012, UBS had $658 million in provisions related to sales of residential mortgage-backed securities and mortgages.

The bank is booking about 700 million francs of charges in the second quarter at the unit that focuses on reducing non-core and legacy assets. It will take about 100 million francs in wealth management because of the Swiss-U.K. tax agreement, which requires banks to collect taxes on accounts of U.K. citizens. The accord has been in force since the beginning of the year.

The Swiss Bankers Association said earlier this month that the country’s banks face losses of about 500 million francs on payments made to the U.K. government as part of the deal related to untaxed assets in Switzerland.