UBS, Switzerland's biggest bank, posted a smaller decline in third-quarter profit than analysts expected after an accounting gain cushioned a $2.3 billion (Dh8.4 billion) loss from unauthorised trading.
Net income fell 39 per cent to 1.02 billion Swiss francs (Dh4.2 billion), the Zurich-based bank said yesterday, beating analysts' mean estimate of 318 million francs. UBS booked an accounting gain of 1.77 billion francs, exceeding the bank's forecast earlier this month, as its credit spreads widened.
UBS, which announced 3,500 job cuts in August, plans to scale down its investment bank and allocate more capital to wealth management. Chief Executive Officer Oswald Gruebel quit following the trading loss and Chief Financial Officer Tom Naratil told investors this month that "economic uncertainty" is driving clients to trade less.
"We see the third quarter results as being positive in a difficult quarter," Teresa Nielsen, an analyst at Vontobel with a "buy" rating on UBS, said in a note, adding that shareholders' equity increased in the quarter. UBS's Tier 1 capital ratio increased to 18.4 per cent from 18.1 per cent at the end of June.
UBS rose 1.7 per cent to 11.33 francs by 9.34am in Swiss trading, the second-best performer on the 46-company Bloomberg Europe Banks and Financial Services Index. The bank gained 3.6 per cent since it announced the loss from unauthorised trading on September 15, compared with a 9.7 per cent increase in index.
UBS said the investment bank recorded a pretax loss, excluding the trading incident and gains on its own credit, of 566 million francs compared with a loss of 19 million francs in the year-earlier period because of a stronger franc and lower revenue across all businesses in "difficult market conditions".
Earnings at the wealth management and Swiss bank division rose 67 per cent to 1.57 billion francs, helped by a gain from the sale of bonds. Wealth management Americas reported a pretax profit of 139 million francs compared with a loss of 47 million francs, while asset management earnings fell 31 per cent to 79 million francs.
Wealth management businesses saw clients add a net 7.8 billion francs in the quarter, while customers withdrew 2.6 billion francs from asset management.
The fair-value gain booked as the bank's credit spreads widened in the third quarter was more than the 1.5 billion francs UBS estimated earlier this month. The accounting gain on own debt stems from a rule that required banks to write down the value of their debts as investors grow less confident of a company's ability to repay them during the quarter. The gain is required under the theory that a profit would be realised if the debt were repurchased at a discount.
UBS also posted a 722 million-franc profit from the sale of US Treasuries and UK gilts.
"Prospects for global economic growth remain largely contingent on the satisfactory resolution of Eurozone sovereign debt and banking industry concerns, as well as issues surrounding US economic growth, employment and the US federal budget deficit," the bank said.
"In the absence of such developments, current market conditions and trading activity are unlikely to improve materially, potentially creating headwinds for growth in revenues and net new money."
UBS in July abandoned its goal of doubling pretax profit from last year's level to 15 billion francs by 2014 and plans to disclose details of its new strategy at an investor day on November 17 in New York.