By Mark Scott
LONDON - UBS confirmed on Tuesday that its profit rose 32 percent in the second quarter, as the Swiss banking giant continued an overhaul designed to put its investment banking problems behind it.
The company had published preliminary results last week when it announced an $885 million settlement with a United States regulator over mortgage-backed securities issued between 2004 and 2007. Authorities had said that UBS and other major banks had misrepresented the quality of mortgage securities that they had sold investors at the height of the housing bubble.
Despite the firm’s legal woes, UBS said that its net income rose to 690 million Swiss francs, or $741 million, in the three months through June 30, compared with 524 million Swiss francs in the comparable period last year.The bank’s second-quarter revenue increased 15 percent, to 7.4 billion Swiss francs, from a year earlier.
As part of an extensive overhaul of its operations, UBS is shifting its focus away from risky trading in its investment banking division towards its wealth management operations.
Although the bank has announced around 10,000 job cuts in its investment bank, that unit continues to represent the largest share of the bank’s pretax earnings - 775 million Swiss francs, compared with a loss of 130 million Swiss franc loss in last year’s period.
Meanwhile, the wealth management division reported an 11 percent jump in its pretax profit, to 557 million francs. When adjusted for one-time restructuring charges and payments related to a new tax agreement between Swiss and British authorities, the bank’s wealth management unit generated its highest quarterly profit in four years: 711 million Swiss francs.
“Our underlying result illustrates the strength of our business model,†UBS’s chief executive, Sergio Ermotti, said in a letter to investors. “This clearly indicates that we are successfully executing on our strategy to ensure our firm’s future success.â€
The bank also announced on Tuesday that it planned to buy back a fund created by the country’s central bank to flush out the firm’s toxic assets. The fund was set up as part of UBS’s bailout during the financial crisis, and the Swiss bank had been given the right to buy back the division once it had repaid the government for its financial support. Under the agreement, UBS will buy the fund for around $1 billion plus 50 percent of its gains.
As one of the world’s largest banks, UBS also has come under pressure to increase its capital reserves to guard against future financial crises.
The bank said on Tuesday that its common equity Tier 1, a measure of a firm’s ability to weather financial shocks, rose by more than 1 percentage point, to 11.2 percent, under the accounting rules known as Basel III in the second quarter.
UBS warned, however, that its operations were still threatened by continued volatility in the world’s financial markets, as investors fretted about U.S. monetary policy and sluggish growth in Europe.
“Client confidence and activity levels could be impacted further by the continued absence of sustained and credible improvements to unresolved European sovereign debt and banking system issues and U.S. fiscal issues,†UBS said in a statement.
