Bad loan provisions weigh on UBS earnings

Swiss banking giant UBS reported on Tuesday, July 21, a dip in 2nd quarter earnings as it stepped up provisions for bad loans in a global economy that has been sent into a tailspin by the coronavirus pandemic.

Net profit slid by 11% from the April-June period last year to $1.2 billion (1.1 billion euros), while operating profits nudged 2% lower to $7.4 billion.

Banks need to set aside certain amounts for expected loan losses depending on the macroeconomic situation and their expectations whether a firm will be able to pay it back, irrespective of whether it has yet to miss a payment.

The global economy is facing a contraction unseen since the Great Depression and a wave of company failures.

UBS took $272 million in charges to treat expected loan losses in the 2nd quarter, after $268 million in the 1st.

The added credit loss expenses pushed down the bank’s performance. Without them, profit before tax would have increased by 10% in the 2nd quarter, instead sliding by 5%, UBS said.

The bank declined to offer specific guidance about dividend payments and share buybacks but said its “intention is to continue to pay out excess capital and maintain the overall capital returns to shareholders consistent with previous levels.”

It did indicate it may resume share repurchases in the 4th quarter of this year depending on business developments.

Governments in many nations have put pressure on companies to halt such payments to shareholders when they are cutting staff and tapping government support mechanisms put in place to attenuate the coronavirus economic shock. – Rappler.com