UBS Earnings Beat Estimates, Shares Spike

UBS (UBS) shares jumped over 7% in early morning trading after the Swiss bank said it swung to a second-quarter net profit of 2.01 billion Swiss francs ($1.91 billion). Strong equity and forex trading, as well as a continued slowdown in withdrawals in its wealth management arm contributed to the results and showed the bank continues to recover under the helm of CEO Oswald Gruebel.

UBS's profit compares with a 1.4 billion francs loss in the second quarter of 2009. It also far exceeded analyst expectations of 1.34 billion francs.

Unlike several American banks and some of its European counterparts, UBS's equities revenues actually climbed 9% compared with the first quarter. Revenues in the fixed income, currencies and commodities trading business declined, however, due to defensive positioning of the books in the quarter and lower client activity.

UBS also managed to slow withdrawals, which began following its massive losses during the credit crisis and the tax probe with the U.S. In its wealth management arm, outflows reduced further to 5.2 billion francs from 8.0 billion francs in the prior quarter. And in its global asset management arm, UBS recorded positive net new money of 3.4 billion francs, compared with net outflows of 2.6 billion francs in the prior quarter.

"This was a good result in volatile market conditions, and demonstrates the progress we are making as we move towards our mid-term targets. Our Investment Bank has improved its competitive positioning, and profits in Wealth Management & Swiss Bank are stable," said Gruebel. "I remain confident in our future and I firmly believe that we have the right strategy in place."

The bank reported its Tier 1 capital ratio was 16.4%, compared with 16.0% on 31 March 2010. It also lowered risk-weighted assets by 4 billion francs.

As for the tax dispute, the bank said that following the Swiss parliamentary approval, UBS expects to achieve a comprehensive resolution of all outstanding matters with the U.S. government related to the matter by October 2010.

Still, despite the continued improvements, UBS gave a cautious outlook. Because it is concerned the global economic recovery may leave markets volatile, the bank believes "this could lead to more subdued client activity levels across our businesses. In addition, we expect that our portfolio management fee income will be lower than in the second quarter."

So even as it continues to tackle all the issues that plagued it since the financial crisis and has passed the stress test, it is not fully there yet.