Legal Costs Fall for UBS, Helping to Lift Profit 5%

The Swiss bank UBS said on Tuesday that its fourth-quarter profit rose 5 percent as the company benefited from lower provisions for potential litigation and a tax gain.

For the three months that ended Dec. 31, UBS reported profit of 963 million Swiss francs, or about $1.04 billion, up from a profit of 917 million francs in the period a year earlier. The results exceeded analysts’ expectations.

The bank’s fourth-quarter results were helped by a tax benefit of 493 million francs.

UBS also booked significantly lower costs for potential litigation and regulatory matters after third-quarter results had been reduced by 1.84 billion francs in legal costs. The bank recorded legal provisions of 176 million francs in the fourth quarter.

UBS, however, said it expected that legal and regulatory costs would “remain elevated for the foreseeable future” for the industry and added that the bank continued “to be exposed to a number of significant claims and regulatory matters.”

As part of its quarterly report, UBS said it had received inquiries from the Securities and Exchange Commission and federal prosecutors in Brooklyn into the possibility of illegal sales of so-called bearer bonds and other unregistered securities to people in the United States. The lender said it was cooperating in those investigations.

The sale of bearer bonds has been largely banned in the United States since 1982 because of their potential use in money laundering and tax evasion. These types of securities were originally issued physically by a business or government, with no requirement that an owner be registered on the bond certificate, allowing anyone holding it to cash it in and the buyer or seller to remain anonymous. Today, when they are sold, they tend to be maintained electronically.

For the full year, UBS said its profit rose 13 percent, to 3.6 billion francs.

“The results are strong, our capital is strong, and we’ve completed our strategic transformation, preparing us well for the future,” Sergio P. Ermotti, the UBS chief executive, said in a news release. “While it’s premature to draw a conclusion about the quarter, we’ve had a solid start to the year.”

During the year, UBS adopted a new legal structure, establishing a holding company, UBS Group, to better position its businesses to withstand future financial crises and meet stiffer regulatory requirements.

The bank warned that Switzerland’s move in January to abandon measures that held down the value of the franc in relation to the euro could hurt UBS’s profit in the future.

UBS said that revenues in its trading business had not been hurt as a result of the move by the Swiss National Bank. But UBS added that a greater portion of its operating income was in currencies other than the franc and that appreciation of the franc could have “an adverse effect on our earnings in the absence of any mitigating factors.”

Operating expenses rose 6 percent, to 6.21 billion francs, in the fourth quarter, compared with 5.86 billion francs in the period a year earlier.

Net interest income — the measure of what a bank earns on its lending after deducting what it pays out on deposits and other liabilities — rose 21 percent, to 1.87 billion francs in the fourth quarter, while total operating income rose 7 percent, to 6.75 billion francs.

In the wealth management division, pretax income jumped 37 percent, to 646 million francs, in the quarter, but slipped 8 percent, to 211 million francs, for that business in the Americas.

The bank also posted a 35 percent decline in pretax profit in its global asset management business, but pretax income in its retail and corporate business increased 2 percent, to 340 million francs.

In the investment bank division, pretax income rose 24 percent, to 367 million francs.