UBS Earnings Bomb

Swiss banking giant UBS joined Merrill Lynch at the bottom of the credit related write-down pile with the release of its earnings Tuesday. The damage: $4.4 billion in credit-related write-downs, wiping out all of the fixed income divisions profits for the first half of the year.

Swiss banking giant UBS joined Merrill Lynch at the bottom of the credit related write-down pile with the release of its earnings Tuesday. The damage: $4.4 billion in credit-related write-downs, wiping out all of the fixed income divisions profits for the first half of the year.

In the third quarter, UBS registered a net loss of $712 million, according to its earnings statement. Like Merrill, the Swiss have cleaned house as a result: Clive Standish, the CFO, and Huw Jenkins, the head of investment banking, lost their jobs this month.(CEO Peter Wuffli was also replaced four months ago by Marcel Roehner, formerly head of the company’s booming global wealth management unit.)

Roehner sounded a lot like other executives in his assessment of the damage and what needs to be done. “Our third quarter result was unquestionably disappointing. However we have introduced a number of measures to improve performance,” he said in a statement. “With the new management team, we are implementing changes to address the weaknesses that led to the losses. These include the management, structure and size of our balance sheet. We are also taking steps to strengthen our market risk management and control framework.”

However, as analysts like Punk Ziegel’s Dick Bove have said in recent days, the credit-market turmoil is not over yet. Indeed, Bear Stearns analyst Chris Wheeler is forecasting an additional $2 billion in writedowns for UBS in the fourth quarter.

In the meantime, some UBS divisions continue to hum. As was the case at Merrill Lynch, wealth management was a bright spot for the firm. Net profit in the global wealth management unit was $2 billion for the quarter. Wealth Management International & Switzerland contributed $1.6 billion of that, a 32 percent increase from the third quarter of last year.

The unit’s younger sibling, Wealth Management US, contributed $155 million, up 321 percent from the third quarter of last year. Pre-tax profit margin in the international unit was 48 percent in the quarter. In the US unit, pre-tax profit margin was just shy of 11 percent, an increase from the second quarter “but still a long way off the target of 20 percent by 2010,” Wheeler wrote in a research note published Tuesday. Together, the units attracted $34 billion in net new client assets, $30 billion from the international unit and $4 billion from Wealth Management US.

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