UBS makes a turnaround, records profit in third quarter

After incurring heavy losses in the first two quarters of 2008, Swiss banking major UBS may now have reason to smile. Today, it reported a third-quarter net profit but warned that the outlook for the rest of the year was gloomy. (See: UBS reports $11.4 billion Q1 loss, may cut over 8,000 jobs and UBS posts $329 million Q2 loss; goes in for major restructuring )

The bank, which is struggling to restore its business and reputation after it was caught up in the collapse of the mortgage market, reported a net profit of 296 million Swiss francs ($252 million), compared with a year-earlier loss of 858 million francs. Operating income fell 38 per cent to 5.6 billion francs.

The results were in line with expectations, as the bank had given investors an update on 16 October. On that day, the Swiss government announced a deal to inject 6 billion francs into UBS, a move that will give it a 9 per cent stake in the bank. (See: Credit Suisse rescues itself, UBS gets funds infusion)

''Since the beginning of the fourth quarter, we have seen many difficult conditions across equity, credit and money markets worldwide,'' Zurich-based UBS said in a statement today. ''We expect that such conditions will continue to affect our clients' assets, and therefore our fee-earning businesses.''

Since the rescue plan was announced, there have been ''encouraging signs'' for net new money flows, CFO John Cryan told reporters on a conference call today. Even so, clients may keep removing funds for some time as part of a ''general trend of deleveraging,'' he said. ''That manifests itself in clients effectively selling investments and withdrawing proceeds to pay down debt.''

UBS will take a charge of about 4 billion francs in the fourth quarter from the transfer of assets, which will probably result in a net loss. CEO Marcel Rohner said last month that the bank expects a profitable 2009 and plans to pay a dividend for that year.

UBS said its investment bank had a pretax loss of 2.75 billion francs in the third quarter after write-downs of $4.4 billion. Rohner announced plans last month to cut an additional 2,000 jobs at the securities unit.

Profit at the wealth management and business banking unit fell 21 percent to 1.86 billion francs, while the asset management unit's profit rose 13 per cent to 415 million francs on a gain of 168 million francs from sale of a stake in Adam Street Partners LLC.