UBS Profits Exceed Expectations
Tuesday, August 03, 2010

Swiss banking giant UBS has boosted the banking sector in Europe by unveiling pre-tax profits for the second quarter of 2010 of CHF2.61bn (EUR1.9bn), marking a better overall performance than expected, and overshadowing several minor disappointments.

UBS is back in the black, as predicted, with a recorded net profit for quarter two of CHF2bn (EUR1.5bn), compared to a net loss for the same period last year of CHF1.4bn (EUR1bn), and far exceeding analysts’ forecasts. Diluted earnings per share stood at CHF0.52 (EUR0.38), down marginally from the first quarter (CHF0.58) after a loss of CHF0.39 the year before.

The investment bank recorded a pre-tax profit of CHF1.3bn compared with CHF1.19bn in the first quarter. The investment bank’s revenues include a CHF595m own credit gain on financial liabilities designated at fair value. Costs were up 3% on the previous quarter but included a CHF228m charge relating to the UK Bank Payroll Tax.

Although Wealth Management Americas recorded a pre-tax loss of CHF67m, compared to a pre-tax profit of CHF15m in the first quarter, it attributed CHF146m to restructuring costs principally related to a “rationalization of the property portfolio”.

Regarding the capital base and balance sheet, the investor release notes that UBS's risk management framework has proven to be robust in testing market conditions. In light of these conditions, UBS adopted a more cautious approach to risk-taking during the quarter, it adds, explaining that in the investment bank, the average trading risk decreased and the business division achieved further significant reductions in its residual risk positions.

According to the release, risk-weighted assets, at CHF205bn at the end of the second quarter, were down slightly as UBS continued to reduce the overall risk profile of the group. While the balance sheet increased by 8% over the quarter, this mostly reflected higher replacement values for derivative instruments which are highly sensitive to market volatility. The bank's BIS tier 1 capital ratio continued to increase and stood at 16.4% on June 30, 2010 compared with 16.0% at the end of the prior quarter. The Swiss Financial Market Supervisory Authority's (FINMA) leverage ratio was 4.1%, unchanged from the first quarter, it continues.

Commenting on UBS's second quarter 2010 results, Group CEO Oswald Grübel stated that: “This was a good result in volatile market conditions, and demonstrates the progress we are making as we move towards our mid-term targets. Our investment bank has improved its competitive positioning, and profits in wealth management and Swiss Bank are stable. Our portfolio of businesses is increasingly able to generate competitive returns in a variety of market conditions, and our risk management framework has proven robust. I remain confident in our future and I firmly believe that we have the right strategy in place.”