UBS Underperforming Global Banks As Legal Liabilities Mount; Still Trades At Premium To Rivals

UBS Group (NYSE:UBS) investors have had a disappointing start to 2026. Despite solid fourth quarter earnings, UBS is underperforming the iShares Global Financials ETF (NYSE:IXG) by 1,000 basis points. It's likely because of legal liabilities. The stock has moved into oversold territory and forward price to earnings estimates are reversing from higher trailing 12 month P/E. That suggests the market is discounting first quarter earnings.

UBS reported strong fourth quarter earnings on Feb. 6, with net profit of $1.2 billion (up 56% annually) and full-year profit of $7.8 billion. Revenues are rising but much of the headline “growth” came from significant net releases of litigation reserves, including a $668 million boost in the third quarter. What does that mean? If a company decides a legal case will not cost as much as they expected, the case was settled at a lower price, or their legal risks have diminished, they can release part of that legal reserve into income. That flows into earnings and boosts reported profits.

But the legal risk is not abating at UBS.

"Old wounds are being reopened related to Credit Suisse's history of helping German Nazis launder stolen Jewish wealth during the Holocaust and escape after World War II," Bloomberg opinion writer Paul Davies wrote on Feb. 4. "These troubles threaten to weigh on the bank and its investors in the years ahead."

In the investment call last month, management discussed cost savings and revenue momentum in their core businesses, but these lingering Credit Suisse legacy issues persist.

UBS' Past Haunts its Present

Last May, Credit Suisse AG pleaded guilty to conspiring with U.S. investors to hide over $4 billion in offshore accounts. The plea was a major development in a long-running investigation into cross-border tax evasion and financial fraud. At the time, the Department of Justice said on May 5 that the bank helped U.S. clients evade taxes between 2010 and 2021 with some 475 undeclared offshore accounts and false documentation. As a result, Credit Suisse breached its 2014 plea agreement with the U.S. for tax evasion.

On Feb. 3, the Senate Judiciary Committee held a hearing about Credit Suisse and Nazi theft of money belong to Jewish citizens of Germany. Sen. Chuck Grassley (R-IA) and other senators criticized UBS for "withholding 150 documents" the Senate investigation team requested, which Grassley said would shed further light on the bank working with the Germany government to confiscate assets held by German Jews at the time.

Credit Suisse's independent auditor, Neil Barofsky, told the Senate that an internal investigation by UBS was  expected to finish "within months" of the February hearing, with his own final report to follow.

It's not only the 1930s and 40s are coming back to haunt Credit Suisse, and by default – UBS Group.

One of the best-known cases that has nothing to do with the old vestiges of World War II involves Uzbekistan billionaire Alisher Usmanov. He dragged UBS's German branch to court over suspicious-activity reports from 2018-2022 that sparked the money-laundering case against him. Swiss Info reported his lawyers saying he "suffered considerable financial losses" because of those allegation, and the investigation was later dropped.

There are other headwinds not involving lawsuits, but involving new laws and regulations, including the year-old regulatory scrutiny in Switzerland and warnings of higher-than-expected liabilities. All of this raises questions about whether UBS will be an underperformer for a longer period.  

Is UBS Overvalued or Just Oversold?

UBS is one of the biggest, international diversified banks in Europe, with a market cap of almost $134 billion. After completing the Credit Suisse merger in July 2024, UBS has since integrated about 85% of Credit Suisse assets into UBS itself.  UBS's invested assets are roughly $7 trillion, which is almost 75% more than what J.P. Morgan (NYSE:JPM) had as of late 2025.

UBS' stock is down 10% so far this year, underperforming JPM and Goldman Sachs (NYSE:GS), which are also negative.

Looking back, other big bank names like Citigroup (NYSE:C) Bank of America (NYSE:BAC) and JPM trade at a cheaper trailing price-to-earnings. Citigroup is closest to UBS at around 16x, with JPM at 15.2x and BofA at 13x. UBS is 17.75x trailing 12-month earnings. Forward P/E is much different at 12.6x. JPM and GS trade at higher forward multiples at this point.

Despite numerous quarterly earnings beats, UBS' share price is down in large part because Swiss regulators are on their tail, and they have big client lawsuits breathing down their necks. Goldman Sachs and Vontobel are now recommending investors hold; they are no longer recommending a buy.

For UBS Group investors, there’s a risk of a reality check throughout 2026 if the market keeps selling amid the earnings news of litigation reserve releases and the ongoing legal woes.

The market may be sensing this already with UBS's relative strength looking oversold after investors poured in ahead of earnings in December. 

Over the last 12 months, UBS shares are up 22%, beating JPM and IXG. The question remains whether Swiss regulators and lawsuits can drag the stock lower, maintaining its underperformance against global banks for the foreseeable future.

In addition to that UBS investigation into Credit Suisse's past, analysts recently learned that UBS managed up to $19 million for Ghislaine Maxwell even after Jeffrey Epstein’s 2019 arrest, Reuters reported. The PR headaches for them will eventually go away, and so investors will return if UBS becomes a value stock.

Meanwhile, ultra-high-net-worth individuals — the crown jewels of private banking in emerging markets — are tracking developments. Win or lose in court, the damage to UBS's reputation among this crowd may already be done, some say.

UBS Group's next earnings call is scheduled for April 26.

Cover art created by the author. Image from UBS stock photos.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.