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UPDATE 1-UBS reports record U.S. brokerage profit on fees, gains
July 31, 2012 / 5:30 PM / in 5 years

UPDATE 1-UBS reports record U.S. brokerage profit on fees, gains

By Joseph A. Giannone

NEW YORK, July 31 (Reuters) - UBS Wealth Management Americas, the U.S. brokerage arm of Swiss bank UBS, reported a 28 percent increase in second-quarter earnings, fueled by one-time investment gains and higher account-management fees.

UBS said the brokerage generated a record $211 million in quarterly pretax profit as revenue rose 5 percent to $1.59 billion from a year earlier. Increases in management fees offset lower commissions, as client trading activity slowed, and net interest income declined.

“Operating at a smaller scale than the other wirehouses is helping them here,” said Cerulli Associates analyst Bing Waldert, alluding to national brokerages Merrill Lynch, Morgan Stanley Smith Barney and Wells Fargo Advisors. “They can be more selective about whom they take or don’t take. They also put their house in order earlier than the others.”

Waldert noted, though, that the investment gains are not sustainable ongoing income.

The ranks of UBS brokers rose by just six advisers to 7,021 from the end of March, but were up 2 percent from 6,862 a year earlier. Broker attrition rates remained low, UBS said.

The firm’s broker ranks have stabilized after thousands fled as the bank suffered some of the biggest financial crisis losses as well as several regulatory setbacks.

Merrill Lynch, by comparison, saw its broker ranks slip by 24 to 16,151 during the quarter.

U.S. wealth management results were a bright spot for UBS, whose investment bank in comparison posted a pretax loss of 130 million Swiss francs driven by a 349 million franc loss from executing Facebook trades during its botched IPO on the Nasdaq stock market in May.

A spokeswoman for the U.S. brokerage business declined to say whether the Facebook debacle had any impact on the brokerage results. Lead Facebook underwriter Morgan Stanley, by comparison, offered to make clients whole by adjust thousands of limit order sell trades from the first day of trading.

Customers added $3.8 billion of net new money during the quarter, excluding interest and dividends on investments already in accounts. Fund flows also reflected $1.8 billion of U.S. income tax payments out of accounts.

The net additions mark at least the eighth straight quarter of positive in-flows at UBS.

Overall client assets slipped 2 percent to $838 billion, though, reflecting falling stock prices during a period of renewed worries about the outlook for the U.S. economy and Europe’s debt crisis.

Still, UBS said annualized average broker production had risen 1 percent to $905,000 from the first quarter, while client assets per adviser slipped by $1 million to $114 million. Bank of America Corp’s Merrill Lynch, by comparison, reported average production had fallen 5 percent to $915,000 in the second quarter.

UBS realized $63 million of gains during the quarter from selling U.S. Treasuries and government agency securities to rebalance an investment portfolio associated with the firm’s Utah-based bank unit.

Operating expenses rose 3 percent to $1.38 billion, fueled by higher broker pay and the lingering cost of recruiting.

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