Bahrain's UGB posts 88 pct fall in Q2 net profit

*Q2 profit down 88 pct on impairments, fee decline

*Books $9.5 mln in impairment losses tied to investments

MANAMA, July 28 (Reuters) - United Gulf Bank UGBB.BH, named in a U.S. regulator's lawsuit over fraudulent trading, on Tuesday posted an 88-percent drop in quarterly profits on impairment losses and a decline in fees and commissions.

The U.S. Securities and Exchange Commission last week filed a lawsuit against UGB, and Hazem al-Braikan, the head of a large Kuwait firm who was found dead a couple of days later in an apparent suicide [ID:nLQ671358].

The SEC is accusing al-Braikan, UGB and some related companies for allegedly having earned millions of dollars from trades in two U.S. firms. Other defendants in the lawsuit include UGB subsidiary Kipco Asset Management Co and Al-Raya Investment Co, headed by al-Braikan.

UGB's chief financial officer, Hussain Lalani, in a telephone interview with Reuters reiterated earlier statements from the bank that it made no gains from the trade in two firms and that it "only provided custody and transaction execution services for those trades in its normal course of business". [ID:nL0374727].

UGB's net profit fell to $5.71 million in the second quarter from $49.17 million in the same period in 2008. UGB's income from fees and commissions fell to $4.97 million from $12.54 million in the same period. It booked $9.5 million in impairment losses tied to its investments.

Lalani said the bank held no exposure to two troubled Saudi groups that have forced lenders across the region to set aside additional provisions. He declined to give an outlook for the following quarter.

UGB is the investment banking arm of Kuwait Projects Co (KPRO.KW), a holding company that has $19 billion assets under management in sectors ranging from real estate to healthcare. (Reporting by Nicolas Parasie; Editing by Rupert Winchester)