UBS bounces back in first quarter

UBS saw a significant improvement over the previous quarter's results Keystone

Switzerland's biggest bank UBS has posted a CHF988 million ($1.05 billion) net profit in the first quarter lifted by strong showings from its investment bank and management for wealthy clients.

The results were down 4.5 per cent from the comparable period a year ago. Still, it was a major turnaround from the CHF1.9 billion loss the bank posted for the fourth quarter of 2012 in the wake of a series of lawsuits, scandals and a wave of restructuring.

UBS, which is cutting 10,000 jobs in a retreat from riskier fixed income activities, cautioned that economic worries might slow trading by wealthy clients and hit second-quarter revenue, margins and fresh inflows.

UBS’s private bank, which forms the cornerstone of the bank’s strategy and must deliver the bulk of the profit in future as the investment bank shrinks, snapped back from a poor fourth quarter with a 67 per cent rise in pre-tax profit.

Fees from trading and transactions at the private bank perked up on a “significant uptick” of client activity in the first six weeks of 2013, particularly in Asia, UBS said.

“While it is too early to declare victory, we have shown that our business model works in practice,” chief executive Sergio Ermotti said on Tuesday. “Although markets improved, we still saw challenges, so I am very pleased with our performance.”

Ermotti also said the bank’s capital cushion rose to ten per cent, making UBS the first financial institution to reach the threshhold required by global and Swiss regulations.  

Scandals and job cuts

In the first quarter, UBS’s investment bank saw a profit of CHF977 million before taxes. The unit hiked revenue 20 per cent using 10 per cent less of its balance sheet, and 15 per cent fewer staff, the bank said.

In total, UBS cut nearly 2,461 jobs in the quarter, part of the overall 10,000 cuts announced last October.

UBS’s wealth management arm also posted a profit of CHF664 million before taxes. The bank is trying to rid itself of a scandal-tainted image and focus far more strongly on private banking clients, or those with more than $1 million in assets to bank.

In December, UBS paid a $1.5 billion penalty for taking part in a multi-year scheme to manipulate Libor and other benchmark interest rates.

With CHF15 billion in fresh funds won from clients, the private bank posted its best showing since 2007, before the subprime crisis hit and caused massive withdrawals.

UBS offered a cautionary outlook on the rest of the year though, due mainly to Europe’s continuing problems.

“While market participants showed renewed interest early in the first quarter, events in Europe served as a reminder that many of the underlying challenges related to structural issues remain unsolved,” the bank said in a statement.

“European banking system issues, ongoing geopolitical risks, and the outlook for growth in the global economy, together with an increasing focus on unresolved US fiscal issues, would continue to exert a strong influence on client confidence, and thus activity levels, in the second quarter of 2013,” it added.