LONDON - UBS on Tuesday reported a 58 percent decline in its net profit during the second quarter as a fall in investment banking income weighed on the Swiss bank.
The drop in profits comes as the chief executive of UBS, Sergio P. Ermotti, is paring back the firm's investment banking unit to focus on its wealth-management division.
Ongoing market volatility connected to the European debt crisis has hit trading activity across the financial services sector.
Like many of its rival, UBS's investment banking unit continued to face difficult market conditions, and was also hit by a 349 million Swiss franc, or $356 million, loss connected to the botched Facebook initial public offering.
The bank said the lack of a solution to the European debt crisis and the Continent's ongoing banking problems could harm the firm's future profits.
“Failure to make progress on these key issues, accentuated by the reduction in market activity levels typically seen in the third quarter, would make further improvements in prevailing market conditions unlikely,†UBS said in a news release.
Net income at the Swiss bank fell to 425 million francs during the three months through June 30, compared with 1.02 billion francs in the same period a year earlier. Operating income fell 10.6 percent, to 6.4 billion francs.
Lower trading revenues and the loss incurred from the Facebook initial public offering hurt UBS's investment banking unit. In total, the division reported a pretax loss of 130 million francs in the second quarter. UBS does not provide net income figures for its separate business units.
Technical errors at Nasdaq exchange earlier this year caused a delay in the start of trading of Facebook shares and later flooded the market with the social networking company's stock. The problems caused UBS to receive more shares than its clients had ordered, according to a company statement.
â€We will take appropriate le gal action against Nasdaq to address its gross mishandling of the offering and its substantial failures to perform its duties,†the bank said.
Despite the declining activity in its investment banking unit, UBS said its wealth-management businesses had received 13.2 billion francs of new money during the second quarter of the year.
UBS continues to reduce its exposure to risky assets after a string of recent scandals, including a $2.3 billion trading loss prosecutors say was caused by Kweku M. Adoboli, a former trader at the bank.
The Swiss financial giant said it had cut its risk-weighted assets by 45 billion francs in the second quarter. The bank now plans to reduce the total figure to 270 billion francs by 2013, more than the previous 290 billion-franc target.
UBS said its core Tier 1 capital ratio, a measure of a firm's ability to weather financial shocks, had risen to 8.8 percent, and would reach 9 percent by the end of the year.
The firm also cut more than 700 jobs during the three months through June 30, as part of the bank's plan to achieve 2 billion francs' worth of annual savings by 2013.
UBS is also subject to several investigations into the manipulation of the London interbank offered rate, or Libor. The British bank Barclays agreed a $450 million settlement last month with American and British authorities after some of its traders and senior executives were found to have altered the rate for financial gain.
In a conference call with reporters, Tom Naratil, the bank's chief financial officer, declined to comment on whether UBS had made specific provisions to cover potential fines connected to the manipulation of the rate.
