Wealth management boosts UBS profit

Credit Suisse and UBS have both seen profit fall in the second quarter Keystone

Switzerland’s largest bank, UBS, put in a solid performance in the first half of the year, reporting a 60 per cent leap in net profit to SFr4.4 billion ($3.51 billion).

Rival Credit Suisse last week posted first-half net income of SFr3.3 billion.

But the second-quarter net profit at both banks was down on that reported in the first three months of the year.

UBS said on Tuesday that net profit for the period from January to March was up by 28 per cent over 2003 to SFr1.974 billion ($1.58 billion), with strong revenues from its wealth management business offsetting weaker trading income.

The figure was in line with market expectations.

Credit Suisse reported second-quarter income of SFr1.457 billion, but a caution about future prospects contributed to a fall in the bank’s share price.

UBS also warned in a statement that revenues in the second half of 2004 were unlikely to match those in the first six months of the year.

“Surprise”

“Something that came as a little bit of a surprise was that costs have increased a little bit faster than we’d been expecting at UBS,” said global equity analyst Andy Penman of Barclays Stockbrokers.

“We didn’t see that problem within Credit Suisse, so good news there for CS,” he told swissinfo.

“In the private banking business, which is the most attractive, CS has been outperforming UBS and that’s also come as a little bit of a surprise. Nonetheless, UBS has its strength in the investment banking core business and it continues to outperform Credit Suisse here.”

Penman explained that second-half net income had slipped at both UBS and Credit Suisse because of falling investment banking revenues, after a strong performance last year.

“Those levels we saw were unsustainable and the revenues generated for those businesses were always going to taper off,” he said.

“Unfortunately, they do appear to be somewhat worse than expected, which is the key explanation for the fact that the headline figures have been dragged that much lower at both of these banks,” he added.

New money

In its statement, UBS said that the second quarter had seen net new money of SFr16.9 billion, with SFr10.4 billion generated from wealth management clients worldwide.

“Halfway through 2004, we can see that the markets’ astonishing start to the year has settled into a more normal rhythm,” commented UBS chief executive Peter Wuffli.

“In that context, this was a good quarter for UBS, demonstrating the importance of having the world’s leading wealth management operation as a central part of our focused strategy,” he added.

UBS managed a total of SFr2.23 trillion in client funds at the end of June, underscoring its position as the world’s biggest asset manager.

The bank added that while investor sentiment had recovered from the very low levels of last year, the outlook still remained “subdued”.

Dampening activity

The bank added that directionless markets as well as expectations of rising interest rates might continue to dampen levels of market activity.

“Since many of our businesses, especially our investment bank, have activity as an important driver, we should expect a return to a more normal seasonal pattern this year with second-half revenues not matching those in the first half,” Wuffli commented.

Second-half earnings at UBS were held back by a $100 million fine by the US Federal Reserve for transferring US currency to Cuba, Iran, Libya and the former Yugoslavia – all subject to US trade sanctions – and trying to hide the transactions.

As a result, UBS has ended its US banknote trading business outside Switzerland and fired or disciplined several employees.

“The behaviour highlighted by the investigation cannot and will not be tolerated in UBS,” Wuffli said in May.

In another development, UBS last week said it would defend itself “vigorously” against claims from the insolvent Italian food group, Parmalat, seeking to recover money related to bond sales.

Parmalat is seeking €290 million plus interest in the action against UBS, filed in a Parma court, and reserves the right to bring another suit to recover damages.

swissinfo with agencies

Key facts

UBS second-quarter results:

Net profit: SFr1.974 billion (+28 per cent) but 19 per cent down on Q1
Operating income : SFr9.484 billion
Operating expenses: SFr6.889 billion
Net new money: SFr16.9 billion, with SFr10.4 billion coming into the wealth management business.

Credit Suisse second-quarter result:
Net profit: SFr1.457, down by 22 per cent over Q1