Swiss bank UBS AG reported a smaller-than-expected 18 percent drop in first-quarter net profit Tuesday as the strength of the Swiss franc ate into overseas profits, and said customer money inflows had improved.
Net profit dropped to 1.81 billion francs ($2.05 billion) from 2.2 billion francs a year earlier, while operating income fell 7 percent to 8.34 billion francs.
UBS, which does much of its business outside Switzerland, said the U.S. dollar was worth about 15 percent less during the first three months of the year compared with the same period in 2010.
"We'll continue to see that effect for some time," John Cryan, the bank's chief financial officer, told reporters. The year-on-year difference in April was about 20 percent, he added.
The results beat analyst expectations for even lower earnings in the first quarter, as year-ago profits were boosted by exceptional factors.
This, together with healthy inflows of customer money everywhere except Europe, lifted UBS shares 5.6 percent to 17.52 francs ($19.96) on the Zurich exchange.
Net new money — an important indicator of future business — increased by 22.3 billion francs. UBS Chief Executive Oswald Gruebel saw the figures "confirming the return of client trust and confidence."
UBS reported a net outflow of 18 billion francs in the first quarter of 2010.
Analysts at Zuercher Kantonalbank praised the turnaround, but noted that the unexpectedly strong improvement in net new money was largely down to lower withdrawals outflows.
UBS also improved margins in UBS's wealth management business beyond expectations, they said.
The Zurich-based bank played up its 7 percent improved profit compared with the last quarter of 2010, citing higher trading income from its investment banking unit. But UBS also benefited to the tune of some 150 million francs from freeing up reserves it had set aside for lawsuits and regulatory changes.
UBS said it expects volatile currency exchange rates due to Europe's sovereign debt crisis and economic turmoil in the Middle East and Japan to offer attractive investment opportunities in the second quarter.
Costs will increase, too, as the bank fights to stop top staff from defecting to the competition. Cryan said base salaries increased by 5 to 10 percent.
Observers have questioned the bank's mid-term target of annual net profit of 15 billion francs in light of greater regulatory demands in Switzerland.
Cryan said UBS stands by that figure.
"We're not deviating from our targets today," he said.
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