UBS profits beat forecasts despite scandal

UBS reported better than expected third quarter net profits in spite of a massive unauthorised trading loss.

Story highlights

  • Third quarter net profits of more than SFr1bn ($1.13bn), despite unauthorised trading loss
  • Results were also better than the bank's own indication that it would make a "modest" profit
  • "I am very confident about the future of our business" said UBS's acting chief executive
  • UBS shares were up 2.06 per cent at SFr11.37 in mid morning trading
UBS reported better than expected third quarter net profits of more than SFr1bn ($1.13bn), in spite of a massive unauthorised trading loss that cost the group SFr1.85bn.
The Swiss banking group's earnings compared with analysts' estimates of around SFr300m, but were distorted by a large number of one-off items, complicating comparisons with previous periods.
The results were also better than the bank's own indication earlier this month, issued in response to the discovery of a $2.3bn unauthorised trading loss at its London equity derivatives operation, that it would make a "modest" profit in the period.
Third-quarter earnings were flattered by a higher-than-expected SFr1.77bn gain booked on changes to the value of the bank's own debt, as well as a slightly lower-than-expected SFr387m in restructuring charges.
Group pre-tax profits of SFr980m compared favourably to the SFr818m made in the same period last year. At the net level, the year earlier results had been boosted by a surprise SFr825m tax gain. By contrast, UBS paid SFr40m in tax in the third quarter of this year.
Shares in UBS rose 2.15 per cent to SFr11.38 in early Zurich trading.
The bank warned future earnings would be unusually vulnerable to broader macroeconomic factors, with particular uncertainties in the US and Europe over government debt and fiscal policies.
"Current market conditions and trading activity are unlikely to improve materially, potentially creating headwinds for growth in revenues and net new money," the bank cautioned.
But Sergio Ermotti, UBS's acting chief executive, expressed confidence about the group's direction.
"We are well positioned in areas of future growth and our targeted investments, together with our focus on efficiency, will strengthen the firm. I am very confident about the future of our business."
As expected., Mr Ermotti disclosed nothing about UBS plans radically to reshape its beleaguered investment bank, a strategy accelerated since the discovery of the unauthorised trading loss. Further information is expected at a November 17 investor presentation in New York.
UBS's investment banking results were relegated to last place in the group's traditional description of its individual businesses. The operation suffered a SFr605m pre-tax loss, compared with a loss of SFr403m in the same period last year.
Excluding this year's unauthorised trading loss, and one-off gains or charges from changes to the value of the bank's own debt, the pre-tax loss amounted to SFr566m, compared with a SFr19m loss last year. As with other investment banks, and as expected, UBS reported sharply lower revenues because of difficult markets and cautious clients.
Wealth management, excluding the US, proved resilient. Net new money amounted to SFr3.8bn, down from SFr5.8bn in the previous quarter but still respectable given difficult markets and the reputational damage of the unauthorised trading affair. Pre-tax profits amounted to SFr888m
As in the previous quarter, Asian clients and the bank's very wealthiest customers continued to deposit funds, while clients in Switzerland's European neighbours withdrew assets. "Onshore" European operations were hit in particular by the SFr1.5bn loss of funds "related to the departure of client advisers who had joined as part of a past acquisition in Germany".
Analysts said the withdrawal was related to the departure of 12 bankers from the former Sauerborn Trust, bought by UBS some years ago. The bank warned a further SFr1bn of withdrawals would follow in the current quarter.
The group's capital position continued to improve. UBS's BIS tier one capital ratio -- a measure of financial strength -- rose to 18.4 per cent from 18.1 per cent at the end of June, while the core tier one ratio -- a more stringent measure -- improved to 16.3 per cent from 16.1 per cent.
UBS shares were up 2.06 per cent at SFr11.37 in mid morning trading.