UBS Blames Facebook IPO For Quarterly Losses

UBS Blames Facebook IPO For Quarterly Losses
UBS AG (NYSE:UBS), the largest bank is Switzerland, suffered a 58 percent decline in net profit during the second quarter of 2012. The bank reported 425 million Swiss francs net profit, compared with its 1.02 billion Swiss francs during the same quarter last year. UBS attributed its losses to the controversial Facebook Inc (NASDAQ:FB)’s initial public offering (IPO). The Swiss bank plans to join the bandwagon of traders and brokers that filed legal charges against Nasdaq to recover from its losses.

According to UBS, it would seek full compensation from Nasdaq. The bank accused that company for “gross mishandling” the Facebook Inc (NASDAQ:FB) IPO after the operator made multiple system failures. UBS said the technology glitches during the IPO caused the bank to loss 349 million Swiss francs.

During its second quarter earnings report, UBS AG (NYSE:UBS) also reported, its Investment Banking Unit recorded a pretax loss of 130 million Swiss francs, due to the ongoing global economic instability and weak trading activity in the financial markets. The bank decided to trim its investment bank, due to the current uncertainties of the business environment globally, and the implementation of stricter rules. UBS plans to reduce its   risk-weighted assets by 50 percent. The bank said 2,000 jobs will axed as a result of the restructuring process.

Dirk Becker, analyst from Kepler Capital Markets in Frankfurt, observed that UBS AG (NYSE:UBS) has been an “underperformer for a while.” He said, “The more assets they cut at the unit, the lower are the chances of earnings in the future.” Becker lowered his rating on UBS.

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On the other hand, Rainier Skierka, analyst from Bank Sarasin, said UBS second quarter earnings were pulled by the disappointing performance of its investment bank unit. He said the unit raises “questions on where the value is for shareholders.”

UBS also suffered 27 percent decline in revenue from fixed income, currencies, and commodities to 1.10 billion Swiss francs. Its earnings from wealth management dropped by 25 percent to 502 million Swiss francs. Revenues from securities also fell by 46 percent. Its Americas unit pretax profit on wealth management gained 43 percent to 200 million Swiss francs. Its wealth management businesses attracted 13.2 billion Swiss francs, of net new money during the second quarter.

Sergio Ermotti, chief executive officer of UBS, said the bank is streamlining its investment bank to concentrate on wealth management, citing the rising capital requirements and the ongoing debt crisis in Europe, having brought negative impact on the profitability of its securities unit. The bank expects the situation in Europe and the uncertainties in economic outlook will create further challenges next quarter.

Furthermore Ermotti said, “We are determined to extend our advantage as the best capitalized bank in our peer group, under current and future regulatory requirements. Clients recognize this and continue to entrust us with their assets.”