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Business Group Results
UBS Wealth Management & Business Banking
Wealth Management's pre-tax profit in second quarter 2003 was CHF 656 million ($486 million), up 23% from first quarter 2003. Operating income rose markedly on a disposal gain from the sale of its participation in Deutsche Boerse, higher transaction fees and recovering asset-based income. Net new money was again strong at CHF 6.5 billion ($4.8 billion), mainly invested by international clients. With excellent performance in the UK and Germany, the European wealth management initiative reported a record inflow of CHF 3.3 billion ($2.4 billion) in second quarter, alongside record revenues.
Business Banking Switzerland achieved a record performance in second quarter 2003, with pre-tax profit of CHF 579 million ($429 million) (up 16% from first quarter 2003). Operating income rose significantly on disposal gains of around CHF 80 million ($59 million), including the sale of the Swiss VISA acquiring business. Interest income remained stable as the impact of higher mortgage and saving account volumes was offset by a decline in margins on current accounts. Operating expenses rose marginally (up 3%) compared to first quarter, reflecting slightly higher depreciation and personnel expenses, mainly for early retirements.
Global Asset Management
Pre-tax profit for second quarter at Global Asset Management was CHF 89 million ($66 million), doubling the profit of first quarter and reaching the highest level since early 2001. Positive market developments resulted in higher asset-based income, which, combined with increased performance fees, pushed revenue up 16%. Institutional margins rose to 35 basis points from 29 basis points in the first quarter 2003.
In the Institutional business, net new money totaled CHF 1.1 billion ($0.8 billion) in second quarter 2003, down from CHF 3.9 billion ($2.9 billion) in first quarter. Inflows into alternative investments, equity and fixed income mandates more than offset outflows from lower margin money market funds. In its Wholesale Intermediary fund business, Global Asset Management recorded a net inflow of CHF 1.3 billion ($1.0 billion), compared to CHF 3.4 billion ($2.5 billion) in first quarter.
The Investment Banking & Securities business unit recorded a pre-tax profit of CHF 1,066 million ($790 million) in second quarter 2003, 14% higher than the same period last year and 19% higher than first quarter 2003. Income was CHF 3,860 million ($2,859 million), up 1% from second quarter 2002 and 16% from first quarter 2003. Improved primary and secondary trading conditions, particularly for equities, provided good opportunities for revenue gains. Equities revenues were 6% lower than in second quarter a year earlier due to the weakening of the U.S. dollar against the Swiss franc, but rose 68% from first quarter this year. Equity underwriting revenues increased significantly, while client commissions remained robust despite lower market volumes than in 2002. The Fixed Income, Rates and Currencies business continued to perform very strongly despite negative revenues of CHF 343 million ($254 million) from derivatives hedging the loan book. This business achieved its third best performance since 1999 with revenues 10% higher than a year earlier, although 9% down on the exceptionally strong first quarter 2003. Investment banking revenues decreased 7% from the same quarter last year, but rose 55% compared to the low levels in first quarter 2003.
Operating expenses in second quarter 2003 dropped by 3% from the same period a year earlier, but increased 14% from the previous quarter, largely as a result of higher personnel expenses reflecting higher incentive-based compensation and severance costs. The cost/income ratio improved significantly and reached the lowest level since mid-2000.
Private Equity recorded a pre-tax loss of CHF 85 million ($63 million) in second quarter 2003. This compares favorably to pre-tax losses of CHF 519 million ($384 million) in second quarter 2002 and CHF 90 million ($67 million) in first quarter 2003. The improvement mostly reflects lower writedowns.
Wealth Management USA
In second quarter 2003, geopolitical uncertainties subsided. As a result, investor optimism improved measurably and client activity increased substantially.
Including acquisition costs and the sale of the CSC clearing business4, the Business Group's pre-tax profit was CHF 143 million ($106 million). Before the disposal gain of CHF 161 million ($119 million) and excluding acquisition costs (goodwill amortization, net funding costs and retention payments), Wealth Management USA posted a pre-tax operating profit of CHF 193 million ($143 million), up from CHF 120 million ($89 million) in first quarter 2003.
Since Wealth Management USA transactions are primarily denominated in U.S. dollars, comparisons of its results to prior periods are affected by the decline of the U.S. dollar against the Swiss franc. In U.S. dollar terms, performance before the disposal gain and acquisition costs was at its highest level since the merger. This reflects improving investor sentiment, the benefits of particularly close client contact and the continuation of record results in the Municipal Securities business.
The cost/income ratio was 90% in second quarter 2003 -- excluding acquisition costs and adjusted for the sale of CSC, the ratio decreased to 86% in second quarter from 90% in first quarter. While still potentially volatile and dependent on client activity, the cost/income ratio has structurally improved since the business became part of UBS.
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