Profits fall 58% at Swiss banking giant UBS

UBS, SWITZERLAND’S biggest bank, said second quarter profits fell 58 per cent, missing analysts’ estimates, as the investment bank posted a loss tied to Facebook’s initial public offering.

Net income declined to 425 million Swiss francs ($434 million) from 1.02 billion francs a year earlier, the Zurich- based bank said in a statement today. That fell short of the 1.09 billion-franc mean estimate of 11 analysts surveyed by Bloomberg.

The shares dropped as much as 6 per cent as UBS said Europe’s sovereign-debt crisis and doubts about the economic outlook may further constrain revenue growth in the third quarter. Chief executive officer Sergio Ermotti is shrinking UBS’s investment bank by more than half to focus on wealth management as rising capital requirements and Europe’s debt woes drag on profitability.

“The investment bank has been an underperformer for a while,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets who has a reduce rating on UBS. “The more assets they cut at the unit, the lower are the chances of earnings in the future.”

The investment bank, run by Carsten Kengeter and Andrea Orcel, who joined this month, had a pretax loss of 130 million francs in the second quarter, hurt by a 349 million-franc loss tied to the Facebook offering. UBS said it will cut risk-weighted assets at the unit by more than previously planned.

UBS joins other banks whose results have suffered from weak markets. Deutsche Bank, Europe’s biggest investment bank by revenue, said that second quarter pretax earnings at its securities unit slid 63 per cent to €357 million ($439 million), missing analysts’ €835 million estimate, as trading shrank amid Europe’s debt crisis.

JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs Group and Morgan Stanley had combined first-half revenue of $161 billion, down 4.5 per cent from 2011 and the lowest since $135 billion four years ago.

UBS will further adjust costs for the group and its investment bank to the environment, Mr Ermotti said. The bank already cut total annualised expenses by 1.1 billion francs in the first half from a year ago and reached its 2013 headcount reduction target at the securities unit, he said. – (Bloomberg)