The wealth management arm of UBS, both in the Americas and rest of the world, reported client inflows in the second quarter of 2012, albeit with slightly mixed fortunes in terms of pre-tax profits.

The wealth management arm of UBS, both in the Americas and rest of the world, reported client inflows in the second quarter of 2012, albeit with slightly mixed fortunes in terms of pre-tax profits. However, the investment banking business was hit by the Facebook initial public offering, saying it will take legal action to recover potential losses amid the mishandling of the IPO by NASDAQ.

The Zurich-listed firm said wealth management's second quarter pre-tax profit (not including Americas) was SFr502 million (around $512 million), down from SFr803 million in the previous three months, mainly as the firm included a credit to personnel expenses of SFr237 million, largely due to changes in its Swiss pension plan. Adjusted for this item and restructuring costs, pre-tax profit dropped by SFr75 million to SFr503 million.

The gross margin on invested assets at UBS fell by 4 basis points to 89 bps, mainly reflecting lower client activity levels. Net new money increased to SFr9.5 billion from SFr6.7 billion in the previous quarter, with strong growth in the Asia-Pacific region helping boost the figures.

Invested assets increased to SFr783 billion. The annualised net new money growth rate was 4.9 per cent compared with 3.6 per cent in the previous quarter.

Americas

Wealth Management Americas recorded a pre-tax profit in the second quarter of $211 million, a slight increase from the prior quarter's record profit of $209 million, as a 1 per cent rise in operating income was only partially offset by an increase in operating expenses.

The second quarter's result included $63 million of realised gains in the investment portfolio, an increase over the prior quarter, and an increase in net fee and commission income that offset the combined effect of reduced net interest and trading income and higher operating expenses.

Operating income increased by $19 million to $1.587 billion from $1.568 billion.

Net new money totalled $3.8 billion compared with $4.6 billion. The annualised net new money growth rate for the second quarter was 1.9 per cent, down from 2.4 per cent in the prior quarter. The gross margin on invested assets decreased by 1 basis point to 79 bps.

Overall picture

For the entire banking and wealth management firm, UBS said it logged a net profit attributable to shareholders of SFr425 million in the second quarter, down from SFr827 million in the first quarter. Pre-tax profit fell to SFr951 million from SFr1.304 billion, primarily reflecting lower trading revenues, excluding own credit, as well as a decline in net fee and commission income and higher operating expenses.

The firm reported a Basel 2.5 tier 1 ratio increase to 19.2 per cent at end-June.

Facebook 

The investment bank recorded a pre-tax loss of SFr130 million in the second quarter compared with a pre-tax profit of SFr730 million in the first quarter. Revenues declined significantly in the securities business amid challenging market conditions. In addition, revenues were dented by a loss of SFr349 million related to the Facebook initial public offering, the bank said.

"Due to the gross mishandling of Facebook's market debut by NASDAQ we recorded a loss of SFr349 million in our US equities business as a result of our efforts to provide best execution for our clients. As a market maker in one of the largest IPOs in US history, we received significant orders from clients, including clients of our wealth management businesses," UBS said.

"Due to multiple operational failures by NASDAQ, UBS’s pre-market orders were not confirmed for several hours after the stock had commenced trading. As a result of system protocols that we had designed to ensure our clients' orders were filled consistent with regulatory guidelines and our own standards, orders were entered multiple times before the necessary confirmations from NASDAQ were received and our systems were able to process them," it continued.

"NASDAQ ultimately filled all of these orders, exposing UBS to far more shares than our clients had ordered. UBS's loss resulted from NASDAQ's multiple failures to carry out its obligations, including both opening the Facebook stock for trading and not halting trading in the stock during the day. We will take appropriate legal action against NASDAQ to address its gross mishandling of the offering and its substantial failures to perform its duties," it added.