July 31, 2012 / 10:03 AM / 7 years ago

Facebook fiasco drags UBS profit lower

ZURICH (Reuters) - UBS reported a surprise slump in profit, hit by a big trading loss on Facebook’s stock market debut and a drop in revenue that pushed its investment bank into the red.

Second-quarter net profit more than halved to 425 million Swiss francs (276.8 million pounds), the Swiss bank said on Tuesday, in a dramatic miss of analysts’ forecasts.

Its shares fell 4.8 percent, underperforming European banking stocks

“This is a weak set of results, but the big disappointment is the investment banking loss with drops in revenue in nearly all segments,” Bank Sarasin analyst Rainer Skierka said. He rates the stock at neutral.

Also on Tuesday, rival Deutsche Bank posted a sharp decline in quarterly earnings from its investment banking and asset management businesses.

Analysts in a Reuters poll had on average forecast UBS to make net profit for the three months ended June of 1.141 billion francs.

UBS’s investment bank swung to a pre-tax loss of 130 million francs from a profit of 383 million francs a year ago.

The bank, which was a market-maker on social networking site Facebook’s initial public offering (IPO) in May, said it suffered a 349 million Swiss franc ($355.7 million) loss as a result of U.S. stock exchange Nasdaq’s “gross mishandling” of the offer. It plans to take action against the exchange.

That loss came on top of a drop in investment bank income as revenue from equity derivatives wilted. UBS is typically stronger in issuing and trading equities than trading debt and commodities. By contrast, foreign exchange and bond trading held up on the year.

UBS said the euro zone debt crisis, the weak global economic outlook and the U.S. “fiscal cliff” of potential steep tax increases and spending cuts were hurting its business.

The bank said it would seek to further prune risky assets overall and at its investment bank, saying it was confident the unit could hit profit targets. The investment bank’s risk-weighted assets, or RWAs, which stood at 170 billion francs in the quarter, will be cut to less than 135 billion francs in 2016, the bank said.

UBS said it was confident it would continue to gather net new assets, which totalled 9.5 billion francs in its flagship private banking arm for the wealthy.

SILENT CUTS

The bank said it would continue to improve efficiency, without detailing further measures. The bank, which employed 63,520 staff at the end of June, is currently cutting roughly 3,500 jobs.

Tom Naratil, the bank’s financial chief, told journalists UBS had put aside funds for a 2012 dividend, which would be its second since the financial crisis that wrought major losses at UBS and culminated in a 2008 government rescue.

Naratil said additional cost cuts would be largely “silent, rather than with great fanfare.”

Rival Credit Suisse said two weeks ago it would cut an extra 1 billion francs in spending, part of a slew of measures to bolster its capital by $15.59 billion (9.93 billion pounds), including by cutting an undisclosed number of jobs.

SUBPOENA

UBS, the first bank to say last March it had been subpoenaed in a probe into how banks attempted to manipulate the London interbank offered rate, or Libor, said it had appropriate provisions for all litigation.

Specifically, UBS, which has previously admitted probes into the yen and Swiss franc Libor and euroyen Tibor, has secured leniency from some justice authorities in return for cooperating with probes into the setting of Libor, a benchmark that underpins an estimated $550 trillion in financial products.

UBS signalled its exposure to Libor probes is limited to the three reference rates, and not others such as the Euro Interbank Offered Rate, or Euribor, where several banks are said to be cooperating with EU antitrust regulators.

“In order to obtain leniency or immunity, you have to find evidence to support this issue. We haven’t found any evidence to support beyond the three we have already disclosed,” UBS boss Sergio Ermotti said at a press conference.

($1 = 0.9811 Swiss francs)

Reporting By Katharina Bart; Editing by Erica Billingham

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