[smallgovt]

UBS's market cap is $46B. After this was announced, their stock fell 4%. This drop, if permanent, would equate to a loss of ~$1.84B in market cap.

There are many factors that could be influencing price, but if we attribute this 4% delta entirely to the announcement, the market is guessing the actual penalty will amount to $1.84B. This could be bc the market thinks UBS can appeal with a 50% success rate, or can negotiate the penalty down by 50% with high certainty.

Edit: I hadn't considered tax implications. If UBS is able to deduct these penalties pre-tax (which I'd assume they would), then it suggests that they are very likely going to have to pay the full penalty. Of course, this is all guess work. e.g. the market could be scared that this sets a precedent for future additional penalties which would decrease the signalling towards full payment on this penalty.

[mikeyouse]

This isn't quite right -- The 4% loss could just represent the delta between what was already priced in and the actual loss. This case has been a long time coming so the expectation of the penalty should have been priced in long ago.

Secondly, and it depends on the jurisdiction, but penalties and fees associated with wrongdoing generally aren't tax deductible.

The US clarified this during the TCJA but most countries agree: https://www.clearyenforcementwatch.com/2018/02/1962/

[repsilat]

There's also that weirdness of financial companies having price-to-book less than one... (For UBS it's around 0.9. Don't ask me how it makes sense.)

[cm2187]

There may be good reasons for that.

First, there are two ways to value companies, depending on what kind of companies they are. The two extremes are on one side a consulting firm, where the value is worth only the present value of the future fees to be earned by the consultants. But the company itself has no asset, very little debt, and its balance sheet is pretty much irrelevant to its valuation. The other extreme is an investment fund, where the company is worth exactly the current market value of its assets, it has no other future revenues other than the expected incomes from these assets.

A bank is somewhere in the middle. It is kind of an investment fund in the sense that all its assets are financial assets that can be sold pretty much at their book value (unlike a factory where the book value may mean very little in term of how much the asset is really worth). But the book value may differ from the fair market value (that's often the case if there are bad loans). But part of the value will also be generated from profits that are unrelated to these assets: fees on payment processing, advisory fees, trading income, etc. So part of the value is also a PV of future revenues.

And these future revenues may be negative. If you look at the past 10 years, banks have experienced huge revenue volatility. From trading losses, fraud (Kerviel style), fines (like UBS here), bad loans (RBS and HBOS style), etc.

And then you can have all sort of weird technicalities. Like the book value may be increased for gains on own credit (if the company fair values part of its liabilities). That's a paper gain that the market is unlikely to give any credit for.

[calpaterson]

Presumably that is down to straightforward doubt as to the value of UBS's book. It is not uncommon for unpopular companies that are holding a lot of their balance sheet at "market value" (as banks do) to trade at discounts to their stated book. Take a look at LSE:LAND, a "£10bn" REIT trading at a £6bn market cap.

[mruts]

Well, just as this case demonstrates, certain companies have exposure to other things (like paying a gargantuan fine) that would make their shareholder equity trade at a discount.

[Someone]

”if we attribute this 4% delta entirely to the announcement, the market is guessing the actual penalty will amount to $1.84B”

No, the market’s guess is $1.84B higher today than it was yesterday. The latter likely isn’t zero, as https://en.wikipedia.org/wiki/UBS_tax_evasion_controversies#... states ”In July 2014, the bank was required to post a bond of 1.1 billion euros, which UBS complied with while making multiple appeals in the French court system, finally losing its appeal at the Cour de Cassation, France's highest court”

[brianpgordon]

It seems like your back-of-the-envelope estimate is assuming that the market values UBS at exactly its assets minus its liabilities. This disregards goodwill, which (someone correct me if I'm wrong) includes expectations of future earnings. That number wouldn't even be affected in a straightforward way since banks, especially European banks, tend to be levered quite a bit in order to survive on interest income.

[mruts]

Goodwill is often counted as an asset (or a liability if they don’t want to pay taxes) on the company’s book. I’m not sure if UBS included it on theirs, though

[brianpgordon]

I believe that's just after an acquisition. Shares trading on the secondary market shouldn't really affect the company's balance sheet.