UBS is a Mess

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Swiss financial giant UBS (NYSE: UBS) has posted awful results "thanks" to a terrible double whammy that sideswiped its financials. Operating in the midst of Europe's continent-wide financial crisis dragged heavily on its revenue and profitability, but a "rogue" trader scandal also hit the bank hard.

Last year Kweku Adoboli, a trader on UBS' equity derivatives desk, made one or a series - the details are still fuzzy - of disastrous trades that ended up costing his firm something like $2.3 billion. Ouch. Predictably, the bank has tried to downplay the effect Adoboli's moves had on its results, but a glance at its recent top line figures ($48 billion in total revenues in 2010 - only around 20 times that $2.3 billion) makes this seem disingenuous.  

Europe's continuing and seemingly intractable financial crisis has taken a nastier bite. All told, the bank's net profit for 4Q 2011 amounted to CHF 393 million ($428 million). This was perilously close to CHF 1 billion less than what the company netted in 4Q 2010, and that's not counting subsequent tax gain adjustments to the originally announced figure. It's also far short of what analysts were expecting the bank to make - the Reuters consensus estimate was CHF 737 million ($802 million).

This isn't the end of the bad news. UBS cautioned that the various macroeconomic factors pounding its results would have "a negative influence on client activity levels in the first quarter of 2012". In other words, expect more lousy results for the next three months. At least.

UBS isn't alone in its misery. Germany's Deutsche Bank (NYSE: DB), like its Swiss rival a multinational sprawling across numerous countries and financial activities, posted an immensely disappointing full-year net profit that fell almost 60% short of its stated goal. Worse than that was Spain's Banco Santander (NYSE: SAN), which saw year-on-year net profit crumble by 98% in its most recent quarter. Similar to UBS, much of Deutsche's and Santander's business is in their native continent and the two banks remain significantly exposed to several of Europe's most dire economies including Greece, Italy and Spain. This is discouragingly commonplace throughout the European financial sector, particularly with locally-focused banks who bet heavily on the worst debtor countries - National Bank of Greece (NYSE: NBG), we're looking at you.

There are bottom feeders out there who look to profit in situations like the one UBS is currently facing. Such players have helped lift National Bank of Greece shares out of the $1.64 ditch they fell in last month (the bank most recently closed at $3.70). But then again, NBG's pain is more localized and its recovery will likely be faster than that of sprawling, stumbling big guys like UBS, Santander and Deutsche. It's clear that even for bottom feeders, those wounded giants are best off avoided. There's no telling how long it will take them to get on their feet again.


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