UBS Shares Staging Comeback

NEW YORK (TheStreet) -- Battered by the financial crisis and a U.S. government crackdown on tax shelters, shares of UBS(UBS) have posted solid gains in recent months, outperforming U.S. and European rivals by a wide margin.

U.S.-listed UBS shares rose 26.26% over the past three months through Tuesday, while most of its U.S. based competitors, including Citigroup(C), Goldman Sachs(GS), Morgan Stanley(MS) and JPMorgan Chase(JPM) were all down by 5% or more over the same time period. Bank of America(BAC) shares are down more than 20% over the same stretch.

A big part of the difference can be attributed to a strong Swiss Franc. The Swiss Franc had gained 12.78% versus the U.S. dollar over the past three months as of late Tuesday. Still, Credit Suisse(CS) had returned 13.13% during the past three months through Tuesday -- well short of UBS's performance.

UBS shares got an additional boost Tuesday following an upgrade to "Buy" from Nomura Securities analyst Jon Peace, making them one of the few gainers on a weak day for financials. Wednesday, the shares were again among the leaders among global investment banks.

Nomura's Peace cites the strength of UBS's balance sheet. Taking a widely-used measure known as Tier I, Peace writes UBS is the strongest among European banks, while also citing its ability to generate additional capital.

"We believe this will soon exceed even Swiss requirements and that a 2011 dividend is feasible," he states in his report.

UBS got a big boost after reporting second quarter results in July. Citigroup analyst Kinner Lakhani refers to its CHF2 billion profit as "strong" amid what he calls "a challenging capital markets backdrop," in a recent report.

UBS proved more nimble in de-risking its equity derivatives book, in contrast to other players, notably Goldman Sachs. Lakhani also cites improving margins in UBS's wealth management business, an area where he sees room for additional improvement as UBS rolls back discounts it had given to hang on to customers through its troubles.

And those troubles, at least as far as U.S. tax authorities are concerned, appear to be diminishing. The Intermal Revenue Service said last week it would likely drop a civil lawsuit against UBS as the Swiss government said it would hand over names of U.S. tax evaders. UBS said it expects the case to be resolved in October.

-- Written by Dan Freed in New York.

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