UBS posts small drop in Q3 profit

SWISS bank UBS overcame a 1.8 billion Swiss franc (€11.47bn) rogue trading loss to post a smaller than forecast fall in third-quarter net profit yesterday, as its core wealth management business performed well.

Managing money for rich clients held up well, with strong inflows to the bank’s Americas unit, despite tough economic conditions and the bad publicity of the trading scandal, made public two weeks before the quarter ended.

Although net profit for the third quarter fell by 39% to 1.018bn francs at UBS, it beat forecasts for 276 million, after big one-off items flagged earlier this month had a more positive impact than expected. Adjusted for one-off items, pre-tax profit was 588m francs.

“A strong performance in wealth management operations, offset by a worse than expected investment banking performance,” said Espirito Santo analyst Andrew Lim. “The underlying operating profit figure is not as strong as at first glance.”

Interim chief executive Sergio Ermotti, appointed after Oswald Gruebel quit over the trading loss, described the quarter as “very challenging for both the industry and the bank” and said the fourth quarter had started with “increased evidence of strain to the financial system”.

“Current market conditions and trading activity are unlikely to improve materially, potentially creating headwinds for growth in revenues and net new money,” the bank said.

Ermotti said he was finalising plans to restructure the troubled UBS investment bank ahead of an investor day on November 17.

Chief financial officer Tom Naratil said an internal investigation into the trading scandal showed its controls had not been effective, with shortcomings related to confirmation with counterparties. He said further disciplinary action might be necessary.