UBS expects positive net profit in Q3 2011 despite unauthorized trading fiasco in September

The bank will report a gain on the sale of treasury-related investments of approximately CHF 0.7 billion in Wealth Management & Swiss Bank.

According to a release, UBS expects to report a modest net profit attributable to shareholders for the third quarter of 2011. The result includes the previously announced USD 2.3 billion loss resulting from the unauthorized trading incident and approximately CHF 0.4 billion of restructuring charges associated with the firm's cost reduction program. In addition, the result benefited from own credit gains on financial liabilities measured at fair value in the region of CHF 1.5 billion, primarily due to the widening of UBS’s credit spreads during the third quarter. Furthermore, UBS will report a gain on the sale of treasury-related investments of approximately CHF 0.7 billion in Wealth Management & Swiss Bank. At present, the Group tax expense is expected to be close to zero for the quarter.

UBS expects to report net new money inflows in its wealth management businesses at levels broadly similar to those of the previous quarter. Global Asset Management will report moderate net new money outflows.

UBS’s capital position remains strong and its capital base at the end of the third quarter of 2011 is expected to remain broadly in line with the balance at the end of the previous quarter, including the loss associated with the unauthorized trading incident. The BIS Basel II tier 1 capital ratio is expected to decline slightly compared with the second quarter due to the impact on risk-weighted assets of the unauthorized trading incident.

The previously announced cost reduction program, which is intended to align UBS’s cost base with changes in the market environment, is on track. The majority of affected employees have been notified, and reductions will continue into 2012. UBS will continue to invest in growth regions, including Asia Pacific, the Americas, and the emerging markets, as well as in our global wealth management franchise.

This update is based on preliminary estimates early in the third quarter closing process. No further updates are anticipated prior to October 25, 2011 when UBS will announce its third quarter results.