UBS’s profits plunge on sluggish trading

INVESTORS shunned UBS after its second-quarter results revealed a steep plunge in profits yesterday, with the bank’s share price dropping 2.88 per cent by the close of trading.

Overall pre-tax profits halved from SFr2.6bn to SFr1.3bn (£989m), well below consensus estimates of SFr1.9bn, with operating profits falling 37 per cent to SFr1.65bn.

But despite an accompanying fall in personnel costs, the bank is gearing up for extensive job cuts globally in order to crack down on its high cost-to-income ratio, which was 77.1 per cent versus 71.2 per cent last year.

The bank promised to slash costs by between SFr1.5bn and Sr2bn in the next two to three years. But it scrapped its medium-term earnings targets as unrealistic, claiming that they had been set in 2009 under “market and regulatory assumptions that are now outdated”.

Its investment bank did particularly badly, with pre-tax profits plummeting 71 per cent to SFr376m. Bonuses were cut 15 per cent, roughly in line with the division’s decline in revenues, as the bank saw a “decline in client volumes in most of our business lines”.

The results highlighted that the bank is also in the process of moving towards the most stringent capital regime in the world, with Swiss regulators currently demanding a core tier one capital ratio of 19 per cent – far above the ten per cent likely to become the rule in the UK.

The bank reported a Basel II tier one ratio of 18.1 per cent at the end of June, but it is likely to have to raise more capital unless Swiss authorities alter their position, due to the strictness of Basel III rules.