ZURICH: Swiss bank UBS AG reported a better-than-expected third-quarter net profit on Tuesday but warned the tough trading conditions that hit its investment banking income looked set to continue unless the global economy improved.
The bank said its core wealth management business had held up well despite a trading scandal which had lost the bank 1.8 billion Swiss francs and reported a big accounting gain which offset that loss.
In the absence of better economic conditions "current market conditions and trading activity are unlikely to improve materially, potentially creating headwinds for growth in revenues and net new money," the bank said. UBS said an ongoing internal investigation into the unauthorised trades uncovered last month had shown its controls had not been effective. It said it had found two control shortcomings related to trading counterparties, and that it was taking measures to address them.
Chief Financial Officer Tom Naratil said the bank was working on plans to restructure the investment bank ahead of an investor day on Nov. 17 and would only give details on possible new cuts then after it announced in August 3,500 jobs would go.
"Our IB will be better aligned with our wealth management business," he told a conference call for journalists.
Net profit fell 39 percent to 1.018 billion francs, beating average analyst forecasts for 276 million francs and steady from the 1.0 billion francs it posted in the second quarter, already hit by falling trading volumes.
"The figures are better than expected, even though they massaged them somewhat. But the result is still good. Wealth management is going very well and I think that will be the direction they want to push the bank in," said one trader.
The bank, which already said the trading scandal had not resulted in many clients withdrawing their money in the quarter, reported wealth management net inflows of 7.8 billion francs, down from 8.2 billion in the previous three months.
That included 4 billion francs of net inflows in its Americas wealth management business, up from 2.6 billion the previous quarter, while the European offshore business -- under pressure due to tax deals -- reported net outflows.
Naratil declined to comment on client trends in the current quarter.
ACCOUNTING GAIN
Rival Deutsche Bank on Tuesday reported third-quarter pretax profit that beat analyst expectations as classic banking and business with retail clients helped offset a slump in investment banking.
UBS said a 1.765 billion franc gain on the value of its own debt and 722 million from the sale of treasury-related investments helped make up for the trading loss and 387 million francs of restructuring costs it booked in the quarter.
This accounting gain -- which occurs because the bank could profit from buying back its own bonds at lower levels -- also gave a big boost this quarter to profits at most US banks.
However, UBS results also mirrored their US peers in showing declining bond and stock revenues as sovereign debt worries spiralled in the three months to September.
The investment bank posted a pre-tax loss of 650 million francs as it said revenues fell across all business areas due to the difficult market conditions and the strong Swiss franc.
However, UBS said its foreign exchange business performed well, with revenues more than doubling on high volatility and good client flows.
Interim Chief Executive Sergio Ermotti, appointed after Oswald Gruebel quit over the trading loss, said he was finalising plans for the new UBS ahead of the investor day.
"We are committed to the implementation of the Investment Bank's client-centric strategy, concentrating on advisory, capital markets and client flow and solutions businesses," Ermotti and Chairman Kaspar Villiger said in a letter to shareholders.
UBS announced in August it would cut 3,500 jobs from its around 66,000 staff to shave 2 billion Swiss francs off annual costs and the bank said on Tuesday that programme was on track.
It also confirmed the reliability of its financial statements in its 2010 annual report.
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