UBS missed market forecasts with a 5 percent increase in second-quarter net profit as weak investment bank results overshadowed strong performance at its private bank, hurting its shares on Tuesday.
UBS, the world's seventh-largest bank by market value, issued an upbeat outlook for the rest of the year, saying that stronger momentum in financial markets had carried into the seasonally slow earnings months of July and August.
"We have started very well into the third quarter, there is quite a healthy pipeline in the market," Chief Executive Peter Wuffli said. "That makes us confident."
Shares in the bank - which has usually exceeded analysts' forecasts in recent years - had fallen 1.8 percent to 104.00 francs at 1411 GMT, to underperform the European banking index. Shares have risen more than 10 percent over the past quarter.
"The quality of the results was good, as UBS accumulated more assets under management in the wealth management units. This mixture may not be enough to impress investors used to noticeable financial outperformance," DrKW said in a note.
Net profit for the quarter came in at 2.147 billion Swiss francs ($1.71 billion), below the average forecast in a Reuters poll of 16 analysts for 2.226 billion francs, but up from 2.043 billion in the same quarter last year.
Net new money inflows to UBS' flagship private banking business, which manages wealthy individuals' assets, rose to a record 19.2 billion francs in the second quarter, from 10.4 billion francs in the year-ago period and boosting fee income.
"The big surprise was in the amount of net new money that UBS was able to attract to its private bank, which is always the case at UBS," said Jerome Schupp, portfolio manager at private bank Syz & Co in Geneva.
The inflow of fresh funds helped boost UBS's invested assets to 2.55 trillion francs overall, underscoring its longstanding claim to be the world's largest wealth manager, coming particularly from well-to-do clients in Europe and Asia.
UBS also said it would like to win the business of bringing Bank of China [BOC.UL] to the stock exchange, but gave no update on talks about taking a stake in the Chinese bank to cooperate in investment banking.
The talks about a possible $500 million stake were not aimed at securing the business of managing the multibillion IPO, which is expected at the end of this year or the start of 2006, UBS said.
UBS is jostling with other Western banks to increase its investment banking presence in China's rapidly growing economy, as well as in the wealth management markets.
Inflows of client funds, with an growing portion from Asia, helped boost net fee and commission income to its highest level since 2001, as did heightened mergers and acquisitions activity around the world.
That helped counterbalance a fall in revenues from trading on the back of tough fixed income markets, UBS said.
Net fee and commission income for the group as a whole rose 11 percent from a year ago to 5.380 billion francs. But net trading income in its financial business fell 17 percent from a year ago, and by a quarter from the previous quarter.
At the same time, staff costs alone were up 4 percent on the year as UBS continued to expand its business and granted pay rises. Headcount in the bank's main financial business rose by just over 1,000 to 69,200 at the end of the quarter.
Overall, UBS results were not as strong as those in the first quarter, when net profit was 2.625 billion francs. UBS had warned that weaker markets would hurt its second quarter.
UBS was one of the few European blue chip banks not to beat forecasts for the second quarter. Many top banks continue to store up profits as excess capital, increasing expectations for returning money to shareholders and acquisitions.
CEO Wuffli said UBS, itself flush with cash, would continue to buy back shares, but give priority to smaller acquisitions to expand its wealth management and investment banking franchises.
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