UBS warns of market uncertainty amid Europe state debt

4th May 2010, Comments 0 comments

Swiss banking giant UBS on Tuesday reported broad recovery across its businesses, but warned of market uncertainty due to European sovereign debt concerns.

Net profit for the first three months of the year reached 2.2 billion Swiss francs (1.54 billion euros, 2.3 billion dollars) at the bank, marking an 83 percent jump from the previous quarter.

A year ago UBS recorded a first quarter loss of 2.0 billion francs.

The latest earnings figures also beat analyst forecasts of 2.0 billion francs, according to a poll by economics newswire AWP.

The group recorded pre-tax profits across all business groups including investment banking, which had run up big losses during the financial crisis but which now recorded 1.19 billion francs in pre-tax profits for the first quarter.

The bank said its investment banking business had benefited from a "strong performance" in its fixed income, currencies and commodities business.

It added in its outlook statement that in the current quarter, the securities trading market was expected to be "generally in line with the first quarter."

However, "concerns relating to European sovereign debt provide a basis for some market uncertainty," it added.

Markets have been spooked by Greece's close brush with bankruptcy.

Worries that the Greeks would fail to cut their crippling sovereign debt have spread, exposing problems faced by other heavily indebted eurozone states such as Portugal and Spain.

While warning about the uncertainty posed by the sovereign debt problem to the markets, John Cryan, chief financial officer of UBS, said that his bank had "hardly any exposure whatsoever to Greece."

"It's immaterial," he stressed.

Cryan pointed out that the group discloses its major exposure to foreign jurisdiction in its annual report, and that "none of Greece, Spain or Portugal appears" there.

As the bank has an investment banking and wealth management presence in Spain, "we have some exposure to Spain but it's not particularly large," he added.

"We're sleeping very well at night."

Meanwhile, the bank was still unable to stem an outflow of new money during the first quarter, which reached 18 billion francs as clients took their assets elsewhere.

However, it was a sharp improvement from the previous quarter, when net outflows reached 56.2 billion francs.

Cryan said that while the management had taken steps to try to stem the outflows, "we still think that they will take some time to take fruit."

Hurt by losses reaching some 21.3 billion francs at the height of the financial crisis in 2008 and 2.7 billion last year, as well as tax evasion lawsuits in the United States, the bank has struggled to repair its image.

Analysts at Bank Wegelin described UBS first quarter earnings as solid, but warned investors against putting money in the banking sector due to several uncertainties.

"A new chill on the financial markets -- such as due to ... state debt -- has new negative consequences," they said, adding that tighter regulation on banks would also dampen future earnings.

"The exit from the US banking data conflict is still open," added the analysts.

In mid-day trade, UBS was down 2.64 percent at 16.59 francs, underperforming the overall Swiss Market Index, which was down 0.49 percent.

© 2010 AFP

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