2nd UPDATE: UBS Can't Match Good Rival 2Q; Capital Pleases
August 04 2009 - 7:50AM
Dow Jones News
UBS AG (UBS) Tuesday said its net loss widened in the second
quarter, failing to match largely buoyant earnings from rivals, but
analysts lauded the Swiss bank's progress of bolstering its
capital.
The Zurich-based bank said its net loss for the three months was
1.4 billion Swiss francs ($1.32 billion), compared with a loss of
CHF395 million in the year-ago period.
The result was weaker than analyst estimates, which had averaged
CHF1.32 billion for the net loss.
Analysts had been warned by UBS to expect a weak result despite
what are turning out to be healthy profits by rivals such as Credit
Suisse Group (CS), Barclays PLC (BCS), and - earlier Tuesday - BNP
Paribas SA (BNP.FR) - where quarterly profit surged on investment
banking gains. Now, UBS, which has written down more than $50
billion in illiquid assets, will be in focus for Friday, when
specifics on an settlement between the bank and the U.S. Internal
Revenue Service are outlined.
The deal in principle, revealed Friday, is being hammered out by
the Swiss and U.S. governments and is expected to include the
handover to U.S. authorities of confidential client data of
suspected tax cheats.
UBS financial chief John Cryan didn't comment Tuesday on the
settlement, for which legal experts suspect the main terms have
already been set.
In its business outlook, UBS said it remains cautious overall,
and that a sustainable economic recovery cannot yet be spotted.
UBS' second quarter includes several charges, including CHF1.21
billion on own debt, CHF582 million to restructure, and CHF492
million related to selling Brazilian investment bank Pactual.
Business in the third quarter has continued in much the same
fashion as the second quarter ended, Cryan said, which indicates
the bank isn't seeing the lull that traditionally hits the summer
months.
Analysts from Sal. Oppenheim, JP Morgan and Helvea lauded UBS'
strong capital, with its Tier 1 ratio rising to 13.2% from 10.5% in
the first quarter. UBS has undertaken a series of capital measures
since Oswald Gruebel took over as chief executive in February.
These include selling Banco Pactual, and a capital injection of
CHF3.8 billion at the end of June.
"We believe the second-quarter results may convince investors
due to better-than-expected capitalization and lower than expected
credit losses," Sal. Oppenheim's Javiero Lodeiro said.
Capital is a major concern for analysts, both because it better
shields UBS against any headwinds but also because wealthy clients
expect their private banks to be very strongly capitalized.
Credit Suisse, currently the benchmark in terms of capital,
posted a Tier 1 ratio of 15.5% for the quarter.
Nevertheless, shares in UBS erased early gains by mid-morning
and headed lower, as stocks in Europe generally turned lower. At
1112 GMT, the stock was down CHF0.89, or 5.6%, at CHF15.11, amid a
1.1% drop in the Stoxx 600 bank index.
In terms of losses from rising loan defaults, UBS beat rivals
such as Germany's Deutsche Bank AG (DB), which took a beating from
investors last week when its provisions against bad lending
rose.
UBS' second-quarter operating income surged 45% to CHF5.77
billion from CHF3.98 billion year earlier because UBS reversed
hefty year-ago trading losses to generate a small gain.
Its private bank lost CHF16.5 billion in client funds in the
quarter, with nervous clients taking flight amid the privacy
concerns. The main private banking unit, which lost or let go of
299 advisers in the quarter - 7.5% of the total - is likely to see
the outflows continue in coming quarters, Gruebel cautioned.
Gruebel also provided a glimpse of what UBS' loss-making
investment bank might look like when it emerges from restructuring.
Businesses such UBS' flagship equities division must regain market
share; and fixed-income, where UBS has always lagged rivals, may
take some months to recover, he said. Prime brokerage, which is
business for and with hedge funds, will be subtly shifted toward
larger, better-known names.
Company Web Site: http://www.ubs.com
-By Katharina Bart, Dow Jones Newswires; +41 43 443 8043;
katharina.bart@dowjones.com