UBS sails further into profit

UBS has the wind in its favour Keystone

Switzerland’s largest bank, UBS, has reported a first-half net profit of SFr2.853 billion ($2.08 billion), up by 5.9 per cent over the same period last year.

UBS said in a statement on Wednesday that positive market developments had boosted revenues and profitability in all its businesses.

It reported second-quarter income of SFr1.639 billion, up by 29 per cent over the first.

It added that the second quarter saw “near perfect” fixed income trading conditions and a relatively rapid rise in equity markets.

Peter Wuffli, the UBS group president, told swissinfo the profit was “very pleasing” but warned that revenues could slide in second half of this year.

“All our businesses posted double-digit profit growth, and that’s very pleasing because it shows UBS is well positioned during recovery times,” Wuffli said.

Wuffli said that UBS believed that the downward pressure on the banking industry was easing. “We do believe…that the worst is behind us,” he said.

However, he cautioned that the recent boom in fixed income businesses, such as bonds, was likely to slow in coming months.

“Fixed income will most definitely cool off and it’s not likely that equities and investment banking will grow to compensate for that,” he said.

“So that’s why we expect somewhat lower profits in the second half.”

Concerned investors

“Investors remain concerned about future economic prospects and confidence in the financial markets has not yet been fully restored,” he added.

Assets under management rose to SFr2,168 billion at the end of June from SFr1,994 billion at the end of March, mirroring the improvement in global markets over the quarter.

However, new money inflows eased to SFr14.4 billion in the quarter from SFr17.1 billion in the first three months.

The group’s ailing private equity unit suffered again, losing SFr85 million before taxes in the quarter, bringing total pre-tax losses to SFr955 million over the past year.

Although UBS has largely refrained from mass firings seen elsewhere in the industry, the overall headcount fell by more than 1,400 in the second quarter alone.

The total number of staff at the end of June was 66,973 or four per cent lower than the previous year.

Strong cost grip

The bank said it continued to maintain a “strong grip” on costs. Operating expenses fell seven per cent from the second quarter 2002, with a 12 per cent drop in general administrative expenses.

UBS shares have risen by almost 20 per cent this year but have still lagged behind competitors, including Credit Suisse, which some investors see as a more aggressive recovery candidate.

Credit Suisse last week reported a first-half net profit of nearly SFr2 billion, which was in stark contrast to last year’s loss of SFr211 million for the same period.

Hilary Cook, an analyst at Barklays in London, said the UBS results were “clearly impressive”.

“The bank has done a lot during difficult times,” she said.

Cook said UBS would continue to be a safe investment, fuelled by solid revenue growth.

Criticism

Wuffli used Wednesday’s announcement to reject criticism that big banks, including UBS, were ignoring the needs of Switzerland’s small and medium enterprises.

“We serve 170,000 small and medium enterprises in Switzerland and we want to maintain that leading position. We have no desire to reduce that or withdraw,” Wuffli told swissinfo.

“But we do, however, differentiate between those SMEs that have an attractive future based on a competitive position and those which are in structurally weak sectors and only live on because of lack of competition based on higher prices and higher costs.”

Wuffli also watered down speculation that the bank was on the hunt for big acquisition targets, insisting it was only interested in takeovers if they suited the bank’s goals.

“We do not have any specific targets,” he said.

swissinfo, with agencies

In brief

UBS made a net profit of SFr2.853 billion in the first six months of 2003.

Second quarter profit was SFr1.639 billion, up by 29 per cent over the first quarter and higher than analysts had expected.

Assets under management totalled SFr2,168 billion at the end of June.