UBS reports halved profit on strong france, uncertainty

26th July 2011, Comments 0 comments

Swiss banking giant UBS reported a halving of quarterly profit on Tuesday and warned it would cut jobs, saying that the rise of the Swiss franc and economic uncertainty had held it back.

The bank warned that it would probably miss its mid-term target.

Second-quarter net profit plunged by 49 percent to 1.015 billion francs (874.8 million euros, $1.266 billion) from 2.005 billion francs a year ago.

Analysts were not impressed by Tuesday's results, with Bank Helvea describing them as "awful."

UBS, based in Zurich, said that it would slash costs by 1.5 to 2.0 billion francs over the next two to three years, a move which would force it to book "significant restructuring charges later this year."

The cost cuts would be made "across all categories and divisions and will affect headcount," said UBS chief financial officer Tom Naratil, although he could not give specific figures.

UBS chief executive Oswald Gruebel said that the bank was still working on "where we must invest less and where we must cut jobs."

Swiss media had reported earlier that the bank would slash 5,000 jobs, in line with banks elsewhere such as British group Lloyds which announced 15,000 cuts and US financial giant Goldman Sachs which said it would axe 1,000 employees.

"Banks returns have declined overall in the last 12 months, reflecting deleveraging and the actions being taken in advance of increased capital requirements," said Gruebel.

"We are responding to this changed environment and the weakening economic outlook by adapting our business and increasing efficiency.

"While our target for pre-tax profit set in 2009 is unlikely to be achieved in the original timeframe, our strong competitive positioning and our capital strength give us confidence for the future," added Gruebel.

UBS had previously set a target to book pre-tax profits of 15 billion francs in the mid-term.

Net new money for the second quarter was positive, reaching 8.7 billion francs, but just a fraction of the 22.3 billion francs recorded in the first quarter, said the bank.

Its wealth management division recorded inflows for the Asia Pacific region and the European onshore business, but the European cross-border business posted outflows amid tighter scrutiny from tax authorities.

The investment bank division meanwhile posted sharp falls in pre-tax profit to 376 million francs from 1.314 billion a year ago, as revenues slumped across the board.

A levy imposed by Britain on bank liabilities that takes effect at the end of the second quarter is expected to shave about 100 million francs off the investment bank unit's pre-tax earnings in the coming quarters.

"Current economic uncertainty shows little sign of abating," said the bank.

"We therefore do not envisage material improvements in market conditions in the third quarter of 2011, particularly given the seasonal decline in activity levels traditionally associated with the summer holiday season, and expect these conditions to continue to constrain our results," it warned.

Bank Helvea analyst Peter Thorne said: "These figures are well below consensus expectations with the investment bank being most disappointing, especially fixed income, currencies and commodities, which has long been an area of weakness for the bank."

© 2011 AFP

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