UPDATE 2-UBS profit halves after losses on its own debt

Wed May 2, 2012 3:24am EDT

* UBS misses Q1 net profit view amid 1.16 bln Sfr charge on own debt

* UBS investment bank slides to quarterly pretax loss

* Bank says has put aside funds for year-end dividend

* UBS confirms 2 bln Swiss franc cost-cutting target

By Katharina Bart

ZURICH, May 2 (Reuters) - Swiss bank UBS's headline first-quarter profit more than halved due to accounting charges relating to the value of the bank's own debt that tipped its investment bank into a loss.

UBS had to take a charge of 1.16 billion Swiss francs ($1.28 billion) on its debt, which contributed to a pretax loss of 373 million Swiss francs at its investment bank arm.

Banks have to record gains if the value of their own debt falls, since it becomes theoretically cheaper to repurchase it. Conversely they have to book losses if the value of the debt rises.

Switzerland's biggest bank, trying to recover from a series of setbacks, including a rogue trading scandal, was cautious on the outlook for the second quarter. It said economic worries rattling wealthy clients such as the eurozone debt crisis and the U.S. deficit were likely to take a toll.

"Failure to make progress on these key issues would make further improvements in prevailing market conditions unlikely and would have the potential to continue the headwinds for revenue growth, net interest margins and net new money," UBS said in a statement.

But the bank was confident its flagship private banking arm would still attract fresh inflows, an important indicator for future revenue.

UBS's first-quarter net profit fell to 827 million Swiss francs from 1.807 billion a year earlier. Analysts had called for net profit of 1.11 billion Swiss francs in a Reuters poll.

The private bank attracted 6.7 billion francs in new money.

UBS, which is scaling back its investment bank to focus on private banking, said it is on track to achieve its target of CHF 2 billion of cost savings by the end of 2013.

Bank Sarasin analyst Rainer Skierka said the results were a mixed bag of solid wealth management results, with the securities unit marred by the debt and other charges.

"Wealth management net new money and gross margins were slightly better than we might have expected post the Credit Suisse results, which arguably gives the results a better 'quality' feel than those of peers," Nomura analyst Jon Peace said. He rates UBS stock a "Buy."

Last week, Credit Suisse reported a slim profit for the quarter amid a better-than-expected showing from its fixed income division. UBS, under Chief Executive Sergio Ermotti, is shrinking its balance sheet to help meet Switzerland's tough new capital rules to make the country's banks more robust after the financial crisis.

UBS cut risk-weighted assets by roughly 30 billion Swiss francs in the quarter, after chopping 20 billion francs in the fourth quarter, putting it ahead of its reduction target for this year

In November, UBS told investors it would cut risky assets at its securities unit by 145 billion francs, a response to the new rules that make it more costly to take on higher risk business.

UBS put aside an undisclosed sum towards a year-end dividend, financial head Tom Naratil told journalists. The bank paid its first shareholder dividend since the financial crisis last year.

It also put 579 million more into its bonus pool for staff than last quarter. U BS is likely to face a grilling from investors on pay on Thursday, when it holds its annual shareholder meeting.

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