UBS to post 'modest' Q3 profit despite rogue trade
Swiss banking giant UBS said Tuesday that it expected to post a slight profit for the third quarter, despite rogue trading which lost the bank $2.3 billion.
"UBS expects to report a modest net profit for the group and positive net new money in its wealth management businesses for the third quarter of 2011," the bank said in a statement.
When the bank first announced the discovery of the massive fraud perpetrated by 31-year-old trader Kweku Adoboli, it warned that it may have to report a loss for the three months ending September due to the unauthorised trade.
However, the bank said preliminary estimates now show a small profit even after taking into account losses from the incident as well as 400 million francs ($435 million, 329 million euros) worth of restructuring charges linked to its cost-cutting programme.
Credit gains of 1.5 billion francs from its financial liabilities as well as the sale of treasury related investments had net it 700 million francs, largely cancelling out the losses.
The bank said however that its Tier 1 capital ratio -- a measure of bank's capital strength, was expected to decline slightly compared to the second quarter due to the impact from the incident.
It added that its programme to save 2.0 billion francs through 3,500 job cuts, which was announced before the trading scandal, "is on track" and that most of the affected employees have been notified.
The statement failed to lift the bank's shares, which were in morning trade down 1.73 percent to 9.91 francs, slightly worse than the overall Swiss Market Index, which was off 1.49 percent.
After the 2008-2009 financial and economic crises which forced UBS to turn to state aid, the bank has slowly worked to stem a outflow of funds as well as rebuild its reputation.
However, it shocked the market when it announced in mid-September that one of its traders had lost it billions in "fictitious" trades.
Adoboli, who has been accused of the fraud, worked for UBS's global synthetic equities division in the City of London financial district where he bought and sold exchange traded funds, which track different types of stocks or commodities such as precious metals.
He was arrested at the bank's London offices in the early hours of September 15. Within hours, the bank announced it had lost $2 billion through unauthorised trading, but it later raised the estimated losses to $2.3 billion.
Adoboli, the son of a Ghanaian former United Nations official, was on September 22 remanded in custody for a month by a London court.
The trading scandal forced chief executive Oswald Gruebel to step down, and hand the reins of the bank to Sergio Ermotti, who headed the bank's Europe, Middle East and Africa operations.
The bank, which is scheduled to post its third quarter results on October 25, said it did not expect to give further updates until then.
© 2011 AFP