MOODY'S CONFIRMS Aaa/P-1/A RATINGS OF UNION BANK OF SWITZERLAND (UBS) AND COMMENTS ON CHANGED RATING OUTLOOK FOR UBS
London, 11/26/1996 -- Moody's Investors Service confirmed the Aaa/Prime-1 deposit ratings and A financial-strength rating of Union Bank of Switzerland (UBS), following the banking group's announcement today that it may report an approximately SF 500 million loss for the fiscal year 1996, primarily as a result of setting aside a SF 3 billion special provision for future years credit risks. In confirming the ratings, Moody's said that the estimated net loss does not reflect a true erosion of UBS's economic earning power, but rather the accounting outcome of the bank's decision to take this special provision. This decision is a reflection of UBS's generally prudent risk tolerance that has characterized the group's growth and diversification for a long time -- both at home and abroad. The consistence of this risk-averse culture, along with UBS's strong and reliable credit fundamentals, continue to underpin the existing ratings, added Moody's.
At the same time, however, the protracted negative economic cycle still prevailing in Switzerland -- partially, but not solely, explained by an overvalued domestic currency -- is leading to more structural domestic asset-quality problems for the country's financial institutions -- including UBS. In this context, further loan-loss provisioning efforts are likely to remain material, added Moody's, noting that even for banks with a proactive provisioning policy, like UBS, the traditional domestic market will continue to be characterized by some stress and uncertainties.
Such developments are especially evident as net lending margins in Switzerland continue to be among the lowest in Europe, and as improving the efficiency of their domestic distribution networks has now become an important target in the Swiss universal banks' strategies -- which have to focus increasingly on shareholder value-creation objectives. These trends, along with the inherent risks of the ongoing international growth and diversification of the group, build up negative connotations for UBS's long-term ratings, said Moody's.
Union Bank of Switzerland is one of the world's largest banking groups, in terms of both capital and total size. Headquartered in Zurich, UBS had consolidated assets of SF 387 billion (approximately US$ 334 billion) as of year-end 1995.
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