UBS warns of tough conditions as Q3 profit surprises

Reuters

By Emma Thomasson

UBS

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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.

UBS said an ongoing internal investigation into the unauthorized 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.

"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 U.S. banks.

However, UBS results also mirrored their U.S. peers in showing declining bond and stock revenues as sovereign debt worries spiraled 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.

"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 program was on track.

It also confirmed the reliability of its financial statements in its 2010 annual report.

(Additional reporting by Caroline Copley; Editing by Sophie Walker)

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