Peter Frommenwiler/Bloomberg NewsUBS offices in downtown Zurich.
UBS said on Tuesday that profit fell 39 percent in the third quarter from the period a year earlier after a rogue-trading scandal had cost it $2.3 billion.
Profit fell to 1.02 billion Swiss francs ($1.2 billion) in the three months ended Sept. 30 from 1.66 billion francs in the period a year earlier. The trading loss and charges linked to a cost-cutting plan were partly offset by an accounting gain on the bank’s own credit of 1.8 billion francs and the sale of some investments.
“Current market conditions and trading activity are unlikely to improve materially, potentially creating headwinds for growth in revenues and net new money,” UBS said in a letter to shareholders. But it added that a plan to reduce costs and scale back its investment banking operation meant “we have every reason to remain confident about our future.”
UBS and other European banks are under pressure to cut costs and consider abandoning some investment banking products and services to comply with stricter capital rules.
In addition, UBS was shook by a trading scandal in its equities division last month that prompted the resignation of Oswald J. Grübel as chief executive. A former UBS trader, Kweku M. Adoboli, is facing charges of fraud and false accounting in London, and investigations into the incident continue.
Sergio P. Ermotti, the interim chief executive, is now scaling back the struggling investment banking operation, which makes up a large part of the bank’s costs, and free up capital to invest in its more successful wealth management unit. UBS is expected to present its new strategy for the unit to investors in New York on Nov. 17. The bank said its plan to reduce costs, which include the elimination of 3,500 jobs, was on track.
“We are finalizing the plans essential to implementing the investment bank’s client-centric strategy, which will strengthen our wealth management offering, reduce the firm’s risks and improve returns to shareholders,” Mr. Ermotti said in a statement.
The pretax loss at the investment banking unit widened to 650 million francs from 406 million francs because of the trading loss, while earnings at the wealth management unit rose; net new money in that operation was 7.8 billion francs in the third quarter compared with 8.2 billion francs in the second quarter.
UBS also said it had filed a document with the Securities and Exchange Commission, as required by United States rules, identifying problems with its internal controls.
One problem was an ineffective system to confirm counterparties of certain trades, while another was a weakness in internal controls to ensure that trades were accurately recorded in the bank’s own books. The bank said it was addressing these issues.
Article source: http://dealbook.nytimes.com/2011/10/25/ubs-profits-fall-after-trading-scandal/?partner=rss&emc=rss