UBS reports a Group net loss attributable to shareholders of CHF 358 million for second quarter 2008. The second quarter 2008 remained difficult for several reasons:
– The positive sentiment seen at the end of first quarter 2008 that the credit crisis may be easing was short-lived, as trading conditions deteriorated significantly in the second half of May, in particular for assets related to US residential real estate as well as other structured credit positions. This development led to second quarter losses and writedowns of around USD 5.1 billion on related positions.
– This quarter was also characterized by generally lower client activity, in particular lower capital markets and mergers and acquisitions activity, and falling securities prices.
– For the wealth and asset management businesses and Business Banking Switzerland, profit levels remained high in absolute terms despite a reduction in comparison with the prior quarter, excluding the impact of the provision for auction rate securities in Wealth Management US. Invested assets rose slightly as currency movements offset net new money outflows of CHF 43.8 billion across the Group.
In the Investment Bank, revenues generated by the advisory and capital markets business fell considerably in comparison with second quarter 2007, in the context of a significant contraction in global deal volume. However, equity capital markets revenues were up significantly from first quarter 2008.
Across the firm, total operating expenses were CHF 8,110 million, down by 18% compared to second quarter 2007. This decline was driven by lower accruals on performance-related compensation and the reversal of certain accruals recognized in first quarter 2008. General and administrative expenses increased by 25% to CHF 2,831 million, as lower expenses in most categories were offset by provisions of USD 900 million (CHF 919 million) in relation to the recent actions taken by UBS in the US auction rate securities markets. The number of people employed at UBS was 81,452 on 30 June 2008, down by 2,387 compared with the end of first quarter 2008, with 1,695 of the reduction in the Investment Bank.
UBS recognized a net income tax benefit of CHF 3,829 million for second quarter 2008, which includes a net impact of CHF 3,200 million from the recognition of a deferred tax asset on available tax losses.
Second Quarter 2008
Second quarter Group net loss attributable to shareholders of CHF 358 millionNet new money outflows in the two wealth management businesses of CHF 17.3 billion; Business Banking Switzerland had additional net outflows of CHF 2.0 billion; and Global Asset Management had net outflows of CHF 24.5 billion
Risk positions
Results were impacted by realized and unrealized losses of USD 5.1 billion on legacy risk positions, mainly on exposures related to US residential real estate related securities and other credit positionsDecisive action taken to reduce exposures to significant risk concentrations, specifically through sales during the quarter, the largest of which was the sale of US residential mortgage-backed securities to a fund managed by BlackRock
Auction rate securities
Provision of USD 900 million (CHF 919 million) associated with the comprehensive settlement related to auction rate securities
Capital and balance sheet strengthening
Successful completion of rights issue in June 2008, with 99.4% of shares taken up by existing and new shareholdersLower level of risk-weighted assets resulting from risk and balance sheet reductionCapital ratio rebuilt to the very strong levels UBS had prior to the outbreak of the credit crisis. Tier 1 ratio of 11.6% and total capital adequacy ratio of 15.7%, among the highest in the global banking industry
Cost reduction
Total operating expenses down by 18% compared with second quarter 2007 to CHF 8,110 million, despite USD 900 million (CHF 919 million) auction rate securities provisionPersonnel numbers reduced to 81,452 on 30 June 2008, down by 2,387 from 31 March 2008 with most of the reduction in the Investment Bank
Outlook
In the second half of this year, UBS does not expect to see any improvement in the adverse economic and financial market trends that affected this quarter’s results. UBS will continue its program to reduce personnel levels, costs and risk concentrations