Swiss bank UBS AG reported a third-quarter net profit of 1.66 billion Swiss francs ($1.65 billion) Tuesday, beating expectations thanks partly to a significant one-off tax credit.
The Zurich-based bank, which posted a net loss of 564 million francs in the same period of 2009, also said it saw a net inflow of deposits from wealthy customers during the third quarter for the first time in over two years.
In a note to investors, analysts at Zuercher Kantonalbank said that without the tax benefit, adjusted pretax profits were significantly below what had been predicted. Shares in UBS fell 5.2 percent to 16.72 francs ($17.20) on the Zurich exchange by noon.
Chief Executive Oswald Gruebel said UBS had suffered similarly difficult market conditions as its competitors during the quarter, which was marked by weak trading and a surge in the franc against both the dollar and the euro.
"We are optimistic that an uptick in the fourth quarter will benefit all of our business divisions," Gruebel said in a statement. "We remain confident about our future and believe that we are on track to achieve our medium-term goals."
UBS booked an 825 million francs net tax credit during the third quarter, helping it beat consensus estimates among analysts for a net profit of just under 1.14 billion francs. It now has four straight quarters of profit behind it, marking something of a turnaround for a bank that was forced to take a government bailout during the subprime crisis.
Net new money flows — a key indicator of future business — reached 1.2 billion francs during the quarter. The small gain is significant because UBS has seen net withdrawals amounting to over 250 billion francs since mid-2008.
UBS had been struggling for months to stem the flow of client withdrawals and recently launched a large marketing campaign to win back the confidence of Swiss customers.
On Monday a U.S. court approved the dismissal of a criminal tax evasion case against the bank, effectively ending its damaging three-year dispute with U.S. authorities after it turned over thousands of suspected American tax cheats and paid a $780 million fine.
John Cryan, the bank's chief financial officer, told reporters the court's decision was "a good milestone."
Like cross-town rival Credit Suisse Group, which reported a lower-than-expected net profit of 609 million francs last week, UBS said its third quarter was affected by currency swings and low levels of client activity.
Recurring income at its wealth management unit decreased 10 percent compared with the previous quarter "principally due to significant strengthening of the Swiss franc against the U.S. dollar." The bank noted, however, that the 9 percent drop in the value of the dollar during the quarter also helped reduce costs by 731 million francs.
Investment banking made a pretax loss of 406 million francs due to writedowns and subdued client trading as a result of weak economic recovery indicators in the United States.
Analysts said revenues at both units were below expectationsthe operating
UBS said it is on course to meet both the newly agreed Basel III capital requirements for banks, as well as even stricter rules proposed by Swiss regulators to prevent the country's two biggest financial institutions from sudden collapse.
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