UBS reports net profit attributable to shareholders of 5.6 billion Swiss francs in the second quarter of 2007.
This quarter’s results include two items that had a significant impact on performance. The first item is the CHF1.9 billion post-tax gain from the sale of the 20.7% stake in Julius Baer, a result of the disposal of Private Banks & GAM in 2005. The second item is the charge of CHF229 million after tax related to the closure of Dillon Read Capital Management, recorded in Global Asset Management.
Excluding these two items, attributable profit in UBS’s core operational businesses would have been CHF3.5 billion, up 14% from the same period a year earlier and 9% higher than the record first quarter 2007 performance.
“Again, net fee and commission income was at a record high of CHF 8.1 billion. This was 26% higher than in the same quarter of 2006, and driven by improvements in practically all fee categories. What is particularly pleasing is that it now represents 52% of operating income,” said Clive Standish, chief financial officer.
The investment banking business saw a very strong rise in M&A and corporate finance fees and higher equity and debt underwriting fees, it said. Invested asset levels rose to CHF3.3 trillion, and, as a result, asset-based fees in the asset and wealth management businesses rose too.
Reflecting mixed market developments, the second quarter result from the trading businesses saw significant swings in both directions. Overall, net income from the trading businesses was CHF3.1 billion, down 9% from second quarter 2006. Equities revenues rose from the same quarter a year earlier, supported by positive market conditions and strength in European and emerging markets.
The performance in fixed income, however, was not satisfactory, UBS said. It noted that continued difficulties in the US mortgage securities market led to lower revenues in the rates business and further losses on some of DRCM’s former portfolios, which contributed net negative revenues of approximately CHF230 million in the quarter. These developments were partially offset by robust credit fixed income results, which rose on global credit trading and proprietary strategies, it added.
“We are working on a number of growth initiatives that are at various stages of implementation. Among them are the expansion of the European wealth management business, investment in the Investment Bank fixed income business and the growth of US wealth management. The underlying strategy of these initiatives remains unchanged,” said Marcel Rohner, chief executive officer. “In implementing them, we need to balance revenue opportunities with operational and economic efficiency. Thus, while the direction and cornerstone of our strategy remain unchanged, the tactics involved in executing will continue to be adapted to varying market conditions.”
In May, UBS announced that DRCM, an alternative investment venture launched in 2006, had not met expectations and, as a result, it had decided to close the business. This process has now been completed. UBS paid back CHF1.5 billion in outside investor interests, with clients receiving a positive return on their original investment. The portfolios, plus UBS’s own capital that was previously managed by DRCM, have moved to the Investment Bank and are now managed within the fixed income division in an integrated fashion. The closure of DRCM led to a charge against profits of CHF384 million pre-tax (CHF229 million after tax). Also, 122 of the 230 DRCM employees were transferred from Global Asset Management to the Investment Bank.
“This quarter’s downturn in credit and equity markets was a timely reminder of the nature of financial risk, and has continued into third quarter,” UBS said.
“The asset and wealth management businesses show sustained strength, and investment banking deal pipelines remain promising. However, markets are currently very volatile, and forecasting is even more difficult than usual,” it added. “If the current turbulent conditions prevail throughout the quarter, UBS will probably see a very weak trading result in the Investment Bank, offset by predictable earnings from wealth and asset management. This makes it likely that profits in the second half of 2007 will be lower than in the second half of last year.”
http://www.ubs.com/1/e/about/news.html?newsId=124367
UBS reports increase in second-quarter profit
Bank expects lower profits in second half of 2007
- By: James Langton
- August 14, 2007 August 14, 2007
- 09:10