Increasing eurozone concerns, stressed market conditions as well
as loss associated with the glitches of the
) initial public offering at the
Nasdaq OMX Group Inc.
) led a to drop in profits at
). The outlook is also bleak.
The company reported second quarter net profit attributable to
shareholders of CHF 425 million ($434 million) or CHF 0.11 per
share, down from CHF 827 million or CHF 0.22 per share in the prior
quarter. Earnings also fell short of CHF 1.0 billion or CHF 0.26
per share reported in the prior-year quarter.
The quarter's results at UBS AG were impacted by a decrease in
trading revenues as well as a decline in net fee and commission
income. Operating expenses were also higher in the quarter.
However, an own credit gain partly mitigated these declines.
Operating income fell 2% from the prior quarter to CHF 6,408
million while operating expenses escalated 5% sequentially CHF
UBS AG experienced a 27% sequential decrease in operating profit
before tax to CHF 951 million. Its Investment Bank division
incurred a pre-tax loss of CHF 130 million in the reported quarter
compared with a pre-tax profit of CHF 730 million in the prior
quarter, reflecting substantial drop in revenues in its securities
business in the backdrop of challenging market conditions.
Moreover, it suffered a loss of CHF 349 million associated with the
glitches in the Facebook debut. The company plans to take legal
action against NASDAQ over this issue.
Investment Banking division's total revenue dropped 6%
sequentially due to reduction in fees which was partially offset by
lower risk management premiums. With declines across most of its
businesses, Equities revenues fell 75%. Moreover, increasing
eurozone concerns as well as tepid growth in the US resulted in
challenging market conditions and therefore, fixed income,
currencies and commodities revenue decreased 27% from the prior
Besides reporting a loss in the Investment Bank division, UBS AG
experienced a 37% sequential decrease in operating profit before
tax to CHF 502 million in the Wealth Management division. Retail
and Corporate division's operating profit before tax declined 31%
from the prior quarter to CHF 399 million. Though that of Wealth
Management Americas moved up 5% from the prior quarter to CHF 200
million, Global Asset Management's profit fell 24% sequentially to
CHF 118 million.
UBS AG's invested assets were CHF 2,163 billion as of June 30,
2012, up from CHF 2,115 billion as of March 31, 2012. The company
saw an increase in regulatory capital. Its Basel 2.5 tier 1 capital
increased by CHF 1.6 billion during the second quarter aided by
lower tier 1 deductions, currency effects and net profit. Basel 2.5
tier 1 capital ratio stood at 19.2% on June 30, 2012, up 50 basis
points sequentially. As of June 30, 2012, balance sheet assets
stood at CHF 1,412 billion, CHF 46 billion higher than on March 31,
The outlook seems grim with UBS AG predicting no material
improvement in market conditions in the third quarter of 2012.
Progress on sustained and material improvements to the ongoing
eurozone sovereign debt concerns, the European banking system and
US federal budget deficit issues, and the uncertainty at large
could impact the client activity levels in the third quarter.
Therefore, failure to make progress on these issues in addition
to the reduction in market activity levels typically witnessed in
the third quarter would likely result in headwinds to revenue
growth, net interest margins and net new money at UBS AG.
Yet, UBS AG expects its wealth management businesses to continue
to attract net new money. The company also remains on track to
achieve its cost savings targets by the end of 2013. Moreover, it
is committed to strengthen its capital position and lower its Basel
III risk-weighted assets and expects its Basel III tier 1 ratio to
be above 9% by the end of 2012.
We believe that the volatile capital market conditions will
restrict top-line growth at UBS AG. However, in the midst of the
overall economic volatility and the eurozone debt crisis, the
company will focus on building its capital level. Restructuring
initiatives are encouraging and we believe that such efforts would
help improve its operating efficiency in the years ahead.
Deutsche Bank AG
), one of UBS AG's rivals, has also posted discouraging second
quarter results. The company, which reported its complete result
today, came up with a preliminary update on its second quarter
results last week.
Deutsche Bank's net income attributable to its shareholders for
the quarter came at €650 million ($798 million), significantly down
from €1.2 billion in the prior-year quarter, reflecting the impact
of the European sovereign debt crisis on investor confidence and
client activity across the bank. A weak Euro also affected its
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