In its annual report, UBS reduced its fourth-quarter profit by 105 million Swiss francs ($104 million) and boosted its litigation reserves to 3.05 billion Swiss francs ($3.03 billion).

"The principal change arose due to an increase in charges for provisions for litigation, regulatory and similar matters of 134 million francs," the Zurich-based bank said.

UBS is now reporting total 2014 net profit of 3.466 billion francs ($3.45 billion), down from 3.571 billion francs it reported in February.

The $135 million settlement resolves antitrust claims by hedge funds, pension funds and other investors that UBS impeded competition in the currency markets by conspiring to manipulate the WM/Reuters Closing Spot Rates, known as the Fix, in chat rooms, instant messages and emails.

JPMorgan Chase & Co (>> JPMorgan Chase & Co.), the largest U.S. bank, in January agreed to pay $99.5 million to settle.

Ten other banks were sued. Michael Hausfeld, a lawyer for the investors, said talks about future settlements were ongoing.

Switzerland's two biggest banks have now revised down fourth-quarter earnings.

Credit Suisse (>> Credit Suisse Group AG) last month said it would set aside more funds for a U.S. probe and other litigation over whether it deceived investors in risky mortgage-backed securities.

CEO PAY

UBS incurred a bill of more than $1 billion last year to settle other allegations of wrongdoing.

It still faces an investigation by the U.S. Department of Justice into possible manipulation of foreign exchange markets, and scrutiny in France over whether it helped wealthy people avoid taxes.

UBS is also defendant in a U.S. class-action lawsuit concerning a silver pricing benchmark.

In its annual report, UBS said it increased total pay for Chief Executive Officer Sergio Ermotti by about 4 percent to 11.16 million francs in 2014 from 10.73 million in 2013.

UBS shares edged 1 percent higher last year, compared with a 2.8 percent fall in the European sector <.SX7P>.

The bank said its board recognized Ermotti's "sound leadership" and the bank's "strong performance."

Overall pay for the bank's executive board fell to 80.06 million francs from 82.4 million in 2013. The board's membership declined to 10 people from 11.

($1 = 1.0050 Swiss francs)

(Reporting by Joshua Franklin and Jonathan Stempel, additional reporting by Nate Raymond; Editing by David Goodman, Susan Thomas and Lisa Von Ahn)

By Joshua Franklin and Jonathan Stempel