July 26, 2011

Q2 Earnings: UBS Misses Estimates, Says Americas Unit Not for Sale

Number of UBS advisors and net new assets rise in the United States and Latin America

UBS reported second-quarter net income of 1 billion Swiss francs, or 0.26 Swiss francs per share, vs. net income of 2 billion Swiss francs, or 0.52 Swiss francs per share, missing analysts’ estimates. In the first quarter of 2011, net income was 1.8 billion Swiss francs, or 0.47 Swiss francs per share.

According to the Swiss-based bank, lower revenue across most businesses was caused by the strengthening of the Swiss franc as well as lower trading income in the investment bank's fixed income, currencies and commodities business.

"Banks' returns have declined overall in the last 12 months, reflecting deleveraging and the actions being taken in advance of increased capital requirements,” said UBS Group CEO Oswald J. Grübel, in a press release.

“We are responding to this changed environment and the weakening economic outlook by adapting our business and increasing efficiency,” Grübel added. “While our target for pre-tax profit set in 2009 is unlikely to be achieved in the original timeframe, our strong competitive positioning and our capital strength give us confidence for the future."

The CEO also said, during a conference call and presentation on Tuesday, that the Swiss bank had no intention of selling its U.S. and Latin America wealth-management operations, now led by Bob McCann.

"Most specifically, we believe we must have a leading wealth-management business in the Americas, Asia-Pacific and Europe and Middle East regions, which represent the greatest opportunities for growing our wealth-management franchise, which also means, as I have said before, that our wealth-management business in America is not for sale,” Grübel said. “And I only say that because these rumors keep coming up lately.”

Wealth-Management Results

The Wealth Management Americas’ unit had a pre-tax profit of 140 million Swiss francs in the second quarter of 2011, up from 111 million in the first quarter of 2011 and a loss of 67 million Swiss francs a year ago.

Total operating income, though, decreased 5% from the previous to 1.29 billion from 1.38 billion; it also dropped 14% from year-ago operating income of 1.49 billion Swiss francs. In U.S. dollar terms, operating income increased 4% due to improvements in fee and interest income, as well as higher realized gains on sales of securities held as available-for-sale, according to the company.

Second-quarter net new money was 2.6 billion Swiss francs compared with 3.6 billion Swiss francs in the first quarter and outflows of 2.6 billion Swiss francs in the year-ago quarter. This represents about $1.2 million in net new money per FA during the most-recent period.

“Second quarter net new money was affected by annual client income tax payments, which contributed to a decline in net inflows among financial advisors employed with UBS for more than one year,” UBS said in a press release.

Net recruiting of financial advisors was the primary driver of net new money in the second quarter, according to the company.

The number of FAs in the wealth-management unit in the Americas is 6,862–up from 6,760 last year and 6,811 in the first quarter of 2011. Assets under management were 694 billion Swiss francs vs. 742 billion Swiss francs last year and 750 billion Swiss francs in the earlier period.

Invested assets under management were 650 billion Swiss francs, or roughly $113 million per advisor. Gross production or fees and commissions per rep stood at $884,000.

“Improvements in wealth-management Americas are quite visible and in line with our plans,” said Thomas C. Naratil, during the morning presentation. “And as Ossie [Grübel] mentioned, contrary to market rumors, this division is part of our global wealth-management business and is not for sale."

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