UBS Q2 net profit dips as Swiss business dampens trading bonanza

UBS saw net profit drop 11 per cent in the second quarter. PHOTO: REUTERS

ZURICH (REUTERS) - UBS, the world's largest wealth manager, saw net profit drop 11 per cent in the second quarter as higher trading activity failed to offset a pandemic-induced slump in retail and corporate banking.

"As we continue to face a challenging environment, we are adapting and accelerating the pace of change, supporting our clients, employees, and the economies in which we operate, while remaining focused on our strategic priorities," chief executive Sergio Ermotti said in a statement.

The decline in net profit to US$1.23 billion (S$1.71 billion) beat analyst expectations for earnings of US$973 million in the bank's own consensus summary of 21 analysts.

Europe's first major lender to report second-quarter results, the bank's focus on wealth management with smaller global investment banking and Swiss retail and corporate banking operations has helped place it on more resilient footing during the Covid-19 pandemic than many European peers.

But a 2 per cent fall in second-quarter operating income, including US$272 million in expectations for credit losses, fell short of the exuberant results posted by trading powerhouses in the United States, which benefited more squarely from a spike in market activity.

In the first quarter, trading activity amongst UBS's wealthy clients had more than offset the risk of increased defaults, helping the bank to a 40 per cent net profit rise.

While trading levels remained high in the second quarter, a drop in asset valuations during a market rout in March - which set the bank up for lower recurring fees, particularly with its US wealth management clients - saw the bank's core wealth management division post more modest growth from April through June.

Assets at the bank's global wealth division climbed 11 per cent in the quarter to stand at close to US$2.60 trillion, driven by the market rally.

Its investment banking division grew pre-tax profit by 43 per cent during the quarter, as trading more than offset a slowdown in its advisory business.

Revenue from foreign exchange, rates and credit trading surged 118 per cent to US$847 million, although the market unit's larger equities unit stuttered, with income slipping 9 per cent to US$974 million.

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