Swiss bank UBS AG reported a better-than-expected third-quarter net profit on Tuesday as an accounting gain helped cancel out a loss of 1.849 billion Swiss francs ($2 billion) on unauthorized trades it uncovered last month.
Net profit fell 39 percent to 1.018 billion francs, compared with average analyst forecasts for 276 million francs and steady from the 1.0 billion francs it posted in the second quarter, already hit by falling trading volumes.
It said a 1.765 billion franc gain on the value of its own debt helped make up for the trading loss and 387 million francs of restructuring costs it booked after announcing 3,500 job cuts in August.
This accounting gain -- which occurs because the bank could profit from buying back its own bonds at lower levels -- also gave a big boost this quarter to profits at most U.S. banks.
However, UBS results also mirrored their U.S. peers in showing declining bond and stock revenues as sovereign debt worries spiraled in the three months to September.
The investment bank posted a pre-tax loss of 650 million francs as revenues fell across all business areas due to the difficult market conditions and the strong Swiss franc.
Market conditions and trading activity are unlikely to improve materially, potentially creating headwinds for growth in revenues and net new money, UBS said.
Interim Chief Executive Sergio Ermotti, appointed after Oswald Gruebel quit over the trading loss, said he was finalizing plans to restructure the investment bank ahead of an investor day on November 17.
As we look to the future, our strategy centers on our leading global wealth management businesses in combination with a competitive and successful investment bank, Ermotti and Chairman Kaspar Villiger said in a letter to shareholders.
We are committed to the implementation of the Investment Bank's client-centric strategy, concentrating on advisory, capital markets and client flow and solutions businesses.
The bank, which already said the trading scandal had not resulted in many clients withdrawing their money in the quarter, reported wealth management net inflows of 7.8 billion francs, down from 8.2 billion in the previous three months.
That included 4 billion francs of net inflows in its Americas wealth management business, up from 2.6 billion the previous quarter.
UBS announced in August it would cut 3,500 jobs from its around 66,000 staff to shave 2 billion Swiss francs off annual costs and the bank said on Tuesday that program was on track.
UBS said that its internal investigation into the unauthorized trading activities had determined that certain controls had not been effective.
The bank said it had identified two control deficiencies related to counterparties of trades and the inter-desk reconciliation process, and that it was taking measures to address them.
The bank said investigations were ongoing and it may broaden the scope of findings to take additional measures. It also confirmed the reliability of its financial statements in its 2010 annual report.
(Additional reporting by Caroline Copley; Editing by David Cowell)