Swiss banking giant UBS AG (UBS) reported Tuesday a loss for its third quarter, that reflected hefty charges mainly related to its own credit for financial liabilities. On an underlying basis, the company recorded a pre-tax profit of CHF 1.56 billion. Looking ahead, UBS said it expects another own credit charge in the fourth quarter, while anticipating further progress in restoring the underlying profitability of the business in future quarters, particularly in 2010.
Net loss for the third quarter was CHF 544 million compared to prior year's profit of CHF 420 million. Net loss attributable to UBS shareholders was CHF 564 million or US$542 million, compared to a profit of CHF 283 million a year ago. On a per share basis, loss amounted to CHF 0.15 or US$0.14, versus profit of CHF 0.09 in the prior-year quarter.
In the sequentially preceding second quarter, the company had reported a net loss of CHF 1.11 billion, and net loss attributable to UBS shareholders of CHF 1.40 billion or CHF 0.39 per share.
The company's operating loss before tax for the third quarter was CHF 593 million or US$570 million, wider than last year's loss of CHF 493 million.
Wealth Management & Swiss Bank recorded a pre-tax profit of CHF 792 million in the quarter, while Wealth Management Americas' pre-tax profit was CHF 110 million, and Global Asset Management pre-tax profit was CHF 130 million. However, these were offset by pre-tax loss of CHF 1.370 billion in Investment Bank, and pre-tax loss of CHF 255 million in Corporate Center.
The company said that latest quarter results were significantly affected by an own credit charge of CHF 1.44 billion for financial liabilities designated at fair value, largely reflecting the tightening of UBS' credit spreads in line with a significant improvement in the market's perception of the bank's creditworthiness. The results also included a charge of CHF 409 million reflecting foreign currency translation impacts in relation to the closing of the UBS Pactual sale and a CHF 305 million loss on conversion of the mandatory convertible notes issued to the Swiss Confederation.
Excluding the accounting charges totaling CHF 2.15 billion, the underlying pre-tax profit was CHF 1.56 billion for the third quarter.
Interest income fell 69% to CHF 5.10 billion from last year's CHF 16.39 billion. Meanwhile, the company's net interest income grew 16% to CHF 1.65 billion from CHF 1.42 billion last year. UBS recorded credit loss expenses of CHF 226 million in third quarter 2009, lower than CHF 357 million last year. Net interest income after credit loss expense surged 34% to CHF 1.43 billion from CHF 1.07 billion a year ago.
Sequentially, third-quarter interest income declined 15% from CHF 6.04 billion recorded in the second quarter, while net interest income grew 45% from CHF 1.14 billion.
Third-quarter net fee and commission income fell 21% to CHF 4.53 billion from CHF 5.71 billion in the previous year. Net trading income was CHF 148 million compared to prior year's loss of CHF 1.51 billion, helped by improvement in the Investment Bank's fixed income, currencies and commodities, or FICC, business.
Total operating income in the quarter rose 4% to CHF 5.78 billion or US$5.54 billion from CHF 5.54 billion last year. However, the growth in operating income was more than offset by a 5% rise in total operating expenses to CHF 6.36 billion from CHF 6.04 billion a year ago, resulting in a net loss in the quarter.
Commenting on UBS's third quarter results, Chief Executive Officer Oswald Grübel said, "In the last two quarters, we have been addressing the bank's most critical problems. Business is steadily returning to normal: We see this in a clear improvement in our financial performance."
While announcing the second-quarter results, the company had said that market conditions improved steadily during the quarter, with asset prices rising as investor confidence began to return in many credit and equity markets. "In spite of these positive economic signs, the overall economic environment in most of the regions in which we operate remains recessionary. Sustainable recovery is not yet visible. Overall, our outlook remains cautious, consistent with our view that economic recovery will be constrained by low credit creation and the structural weaknesses in consumers' and governments' balance sheets," UBS had said in a statement.
At the end of the third quarter, total assets were down 8% to CHF 1.48 trillion and total risk-weighted assets under Basel II were down 15% to CHF 211 billion.
Another Swiss banking giant Credit Suisse Group (CS), recently reported a hefty profit in its third quarter, compared to prior year's loss, boosted by strong revenues from Investment Banking segment as well as EMEA and Americas region, reflecting further stabilization in the global economic activity. In the quarter, reported net income attributable to shareholders was CHF 2.354 billion or CHF 1.81 per share, compared to prior year's net loss of CHF 1.261 billion or CHF 1.22 per share. Income before taxes in the quarter were CHF 3.543 billion, compared to prior year's loss of CHF 2.866 billion. Net revenues surged to CHF 9.870 billion in the quarter from CHF 2.684 billion a year ago.
According to Credit Suisse, "global economic activity in the third quarter showed further signs of stabilization as a result of the concerted global policy responses undertaken in previous quarters. Global risk appetite improved, moving equity markets higher. The US dollar weakened against most currencies and commodity markets were mixed."
German financial services firm Deutsche Bank AG (DB) last Thursday reported a sharp rise in its third-quarter profit, driven by revenue growth that primarily reflected strong performance of its Corporate and Investment Bank division. The Frankfurt, Germany-based bank reported net income attributable to the company of 1.4 billion euros or 2.10 euros per share, compared to 414 million euros or 0.83 euros per share in the year-ago quarter. Deutsche Bank's net revenues for the quarter increased to 7.2 billion euros from 4.4 billion euros in the prior-year quarter.
For the nine months of fiscal 2009, UBS' net loss narrowed to CHF 3.49 billion from prior year's loss of CHF 11.28 billion, and net loss attributable to UBS shareholders was CHF 3.94 billion or CHF 1.09 per share, compared to loss of CHF 11.73 billion or CHF 4.42 per share a year ago.
Nine-month interest income plunged to CHF 18.78 billion from CHF 54.15 billion in 2008, while net interest income rose to CHF 4.70 billion from CHF 4.34 billion a year ago. Operating income for the period surged to CHF 16.51 billion from CHF 5.49 billion in the previous year.
Looking ahead, UBS said it expects to see further progress in restoring the underlying profitability of the business in future quarters, particularly in 2010, as it has stabilized the bank's financial condition and resized the business. However, this progress will depend on market and other factors.
Based on current conditions, UBS expects another own credit charge in the fourth quarter, as a result of further tightening of its credit spreads.
UBS also said it projects the Investment Bank's performance to continue to improve into 2010, but fourth quarter results will likely reflect the early stage of its recovery.
The company anticipates the early part of 2010 to reflect the full impact of 2009's cost reductions, and it does not expect an immediate recovery in client net new money flows. The impact of low interest rates on net interest income continues to hold back revenues, especially in Wealth Management & Swiss Bank, the bank said.
Grübel said, "Management actions are delivering visible results, and we are continuing to emphasize risk reduction and capital strength. Moreover, the settlement of the litigation with US tax authorities and the decision of the Swiss government to exit its investment in UBS are having a profound impact on our efforts to rebuild confidence in our company and on staff morale."
The company added that its cost reduction program is on track, and that its personnel were down by 2,783 to 69,023 as of September 30, 2009. UBS said its 2010 headcount target is adjusted to 65,000 to reflect divestments announced in 2009.
UBS closed Monday's regular trading session at $16.78, up $0.19 or 1.15%, on a volume of 4.67 million shares. In the past 52 weeks, shares have been trading in a range of $7.04 to $19.32.
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