FINMA FX Probe Taking a Bite Out of UBS, Shares Down 6%

Shares of UBS are down 6% today after they announced its third quarter earnings results. Despite profit gains, trader reacted

ubs logoSwiss-based bank, UBS has announced its third-quarter results for 2013 today. Figures were well above last year with the bank achieving CHF577 million in net profit versus a loss of CHF2.134 billion in 2012. However, top line revenues were flat with the same period last year. While most divisions experiencing gains, such as in Wealth Management and Investment Banking, trading income was lower as UBS blamed a drop in foreign exchange related volumes as affecting revenues.

Despite the overall profit gains, shares are trading lower by 6% today as UBS announced that future profit results will be impeded by investigations by Swiss financial regulator, FINMA into the bank’s involvement with FX price-fixing. Reported earlier in the month, FINMA announced that it had begun formal investigations of financial institutions in its jurisdiction in regards to possible manipulation of FX prices. The investigations were joined by other global financial regulators including the UK’s FCA, US’s CFTC and Singapore’s MAS. Specifically, regulators are investigating trading activity among large dealing banks during the period leading up to London’s daily 4pm FX price-fix. The ‘fix’ period is used as a central price point to establish pricing on instruments whose pricing is derived from currency prices. As a result, pricing during the fix ultimately affects values of multiple assets such as bond, ETFs and swaps that are denominated in foreign currencies.

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In regards to UBS, the bank announced that due to the investigations, FINMA is requiring the company to increase its capital reserves to meet ” known or unknown litigation, compliance and other operational risk matters.” UBS added that the capital increase amount was based on FINMA’s calculation of similar losses accrued by firms with comparable operational risks. Also declining today are shares of Deutsche Bank, which are down around 2.0% as the bank also reported that it expects to see an increase in litigation costs.

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