UBS 2Q hit by Facebook IPO loss

Associated Press Modified: July 31, 2012 at 1:32 pm •  Published: July 31, 2012
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GENEVA (AP) — Shares in UBS plunged after the Swiss banking giant posted a worse-than-expected 58 percent fall in second-quarter profits Tuesday due to losses from the Facebook stock listing and a downturn at its investment banking division.

Switzerland's largest bank said the drop in profits to 425 million francs ($434.16 million) from 1.02 billion Swiss francs ($1.2 billion) a year earlier reflects "challenging conditions marked by increased volatility and greater client caution."

The Zurich-based bank missed analysts' estimates for more than 1 billion francs in profit, and its shares fell 5.9 percent to 10.29 francs ($10.52) Tuesday.

UBS AG incurred a 349 million francs loss due to problems executing electronic trades on the day of Facebook's listing on the Nasdaq exchange in May. That pushed the investment banking unit to a pretax loss of 130 million francs for the second quarter.

Because of those technical errors, which gave UBS more shares than its clients ordered, the bank said it will take unspecified legal action against Nasdaq to recoup the losses.

"We will take appropriate legal action against Nasdaq to address its gross mishandling of the offering and its substantial failures to perform its duties," the bank said.

Chief Executive Sergio P. Ermotti, who is cutting the investment bank's size by more than half, told investors in a statement that going forward UBS will focus more on wealth management to comply with the need for greater capital cushions. He said the bank would continue to focus on "prudent liquidity management, further reducing risk-weighted assets and delivering the best possible service to our clients."

The bank said it had surpassed requirements to increase its capital cushion and prudently cut costs that should lead to better results by the end of 2013. UBS said it plans to boost capital by 15.3 billion francs this year to comply with the urgings of the Swiss central bank.