UBS profit beats expectations as CEO Ermotti holds stance on capital

By Ariane Luthi

ZURICH (Reuters) -UBS's second-quarter profit more than doubled from a year earlier, beating expectations on a surge in trading activity even as regulatory uncertainty continued to preoccupy the bank.

Net profit came in at $2.4 billion, beating a company-provided estimate of $2.045 billion as the bank joined rivals in benefiting from higher trading amid market turmoil.

Switzerland's largest bank remains committed to remunerating its shareholders, CEO Sergio Ermotti said, renewing his criticism of Swiss government proposals to increase the amount of capital it would have to hold by $24 billion, which analysts have said could hamper its ability to reward investors.

Reuters reported on Tuesday that UBS had stepped up contingency planning, including considering moving its headquarters. Ermotti said however the bank was focused on staying in Switzerland.

At the same time, "shrinking is not an option", he told reporters, adding that UBS retained its global ambitions, including in the U.S.

"We are not going to front-run any new capital regime, that's clear," he added.

Theories that UBS could easily absorb or mitigate proposed capital increases did not reflect reality, he said on an analysts' call, with any mitigation strategies coming "at a significant cost".

Deliberations in the Swiss parliament over capital requirements could take years.

The government is concerned about the potential for crises, given that UBS is the country's sole global bank, with a balance sheet about double the size of the economy.

For Deutsche Bank analysts, "while Swiss regulation remains a known headwind by now", the results were a "good reminder of the strength of the business model and the fast and relatively smooth integration of Credit Suisse".

TRADING, OUTLOOK STRENGTHEN

Shares in UBS trimmed early gains to trade 0.8% higher.

UBS was upbeat about its outlook, saying it saw a high level of readiness among investors and companies to deploy capital as "conviction" around the global economy strengthens.

Revenues for global markets surged 25%, beating analysts' expectations, during a quarter when trading cues were focused on U.S. tariff policies. Transaction-based income for its global wealth management division rose 12%, slightly below forecasts.

UBS expects trading and transactional activity to normalise in the quarter ahead, but said it was too early to say when deals in the pipeline would be executed.

Other major banks such as Bank of America, JPMorgan Chase, Citigroup and Morgan Stanley also beat estimates in the second quarter as traders cashed in on volatile markets.

Some of the earnings beat can be attributed to a $427 million release of provisions related to the resolution of a Credit Suisse litigation issue, as well as a net income tax benefit of $209 million.

Integration of Credit Suisse remained on track, UBS said, with one-third of client accounts booked in Switzerland migrated.

FX LOSSES

Market volatility in spring also meant some UBS clients booked losses after they were sold complex foreign-exchange derivatives that wiped out much of their investments. The bank has been in talks to compensate clients, Reuters reported in May.

Ermotti said on Wednesday that fewer than 200 clients were affected and that some UBS advisors "did not adhere to the rules that we have in place", without elaborating.

He declined to disclose the amount the bank has set aside for compensation, but said the cost for UBS was "not material".

(Reporting by Ariane Luthi; additional reporting by Stefania Spezzati; Editing by Edwina Gibbs and Jan Harvey)