UBS Second-Quarter Profit Rises 5.4% on Private Banking Gains

UBS AG, Europe's biggest bank by assets, said second-quarter profit increased 5.4 percent as it made more money from managing assets for wealthy clients.

Net income at the Zurich-based company rose to 2.15 billion Swiss francs ($1.71 billion) from a restated 2.04 billion francs a year earlier. Earnings missed the 2.2 billion-franc median estimate of eight analysts surveyed by Bloomberg.

UBS has made more than a dozen private banking purchases since the start of 2004, as Chief Executive Officer Peter Wuffli, 47, tries to cement the bank's position as the world's biggest money manager for wealthy individuals as competition increases.

The private bank "is a cash machine," said Rolf Steinmann, who manages $155 million, including shares of UBS, at Generali Investment Consulting in Zurich. "It really makes money."

UBS probably has 4.5 percent of the estimated global wealth of people with more than $1 million to invest, according to Ted Wilson, a consultant at Scorpio Partnership Ltd. in London. Including its asset management business, UBS had more than 2 trillion francs under management at the end of the first quarter, more than Italy's gross domestic product last year.

Pretax profit at UBS's wealth management division, where fees are based on the market value of invested assets and the amount of transactions done, rose 11 percent from the year-ago quarter to 963 million francs, higher than the 951 million-franc median estimate of six analysts surveyed by Bloomberg.

The Dow Jones Stoxx 50 Index rose 6 percent in the second quarter, after gaining less than 1 percent in the same period a year ago. The dollar advanced 7 percent against the franc after dropping 1.4 percent in the year-earlier quarter. A stronger dollar increases the value of dollar assets converted into francs.

"Pressure on margins at private banks is being compensated through the higher volume," said Alan Zlatar, head of a team managing European equities at Julius Baer Asset Management, part of the Julius Baer Holding AG, which oversees 145 billion francs.

To reduce costs, UBS is also merging its US, Swiss and international wealth management units. Those businesses will be combined with Swiss corporate and retail banking in a division to be run by Marcel Rohner, who had led the private bank. Mark Sutton, head of UBS's Wealth Management USA, the former Paine Webber Group Inc., will become CEO for the Americas. UBS bought New York-based Paine Webber for $11.5 billion in 2000.

Since the Paine Webber purchase, UBS has drawn new money outside of Switzerland through what it calls ``bolt-on'' acquisitions. Purchases last year, including the takeover of German private bank Sauerborn Trust AG, added about 40 billion francs to the assets UBS managed for rich clients.

Net inflows into the wealth management unit were a record 18.4 billion francs in the second quarter. Analysts had estimated UBS would draw 12 billion francs of new money. Inflows were 15.4 billion francs in the first quarter.

Pretax profit from investment banking rose 12 percent from the year-ago quarter to 1.08 billion francs. Analysts had forecast pretax profit of 1.16 billion francs.

UBS was sixth in advising on global mergers and acquisitions that were completed in the second quarter. The company was also the No. 1 underwriter of stock and equity linked bonds in the first half, overtaking competitors such as Morgan Stanley, as sales in Europe increased and UBS gained market share in the US.

UBS spent five years hiring bankers in the U.S. and making acquisitions to bolster its trading, research and brokerage businesses. The bank last year bought Charles Schwab Corp.'s market- making and institutional trading unit for $265 million

Huw Jenkins, global head of equities, took over as CEO of the investment bank at the end of June, replacing John Costas, 48, who is starting a new hedge fund unit Dillon Read Capital Management.

UBS shares have risen 32 percent in the past five years, beating Credit Suisse Group and Frankfurt-based Deutsche Bank AG. Of 27 analysts who rated UBS stock in the past year, 19 recommended investors buy the shares and eight issued hold ratings.

Zurich-based Credit Suisse, Switzerland's second-biggest bank behind UBS, last week said second-quarter earnings slumped 37 percent because it set aside money to pay for potential legal claims including the bankruptcy of energy trader Enron Corp.

Deutsche Bank, Germany's biggest bank, said last month that quarterly earnings jumped 44 percent, as trading topped Wall Street competitors such as Goldman Sachs Group Inc. and Citigroup Inc.