Risk-taking pays off as UBS profits double

UBS, Switzerland's largest bank, yesterday became the latest investment bank to signal a return to boom times with record profits in the first quarter of the year.

UBS, Switzerland's largest bank, yesterday became the latest investment bank to signal a return to boom times with record profits in the first quarter of the year.

The bank's net profits of 2.43bn Swiss francs (£1.06bn) - double the amount reported in the same period last year - was boosted by a strategy to capitalise on improving stock market conditions by taking more risk in the buying and selling of shares on the bank's behalf, known as proprietary trading.

UBS's move is part of a trend among investment banks to take on more proprietary trading risk. Goldman Sachs reported record net income of $1.29bn (£720m) after it increased the amount of money it was prepared to lose on a daily basis - known as the value-at-risk - to a historic high of $71m in its own first quarter.

UBS, which struck a cautious note during the three bear years of the stock market, said it had increased its tolerance to losses at the start of the year.

Clive Standish, chief financial officer at UBS, said: "We did take more risk and we were well rewarded." Income from UBS's trading activities was 33 per cent higher in the three months to 31 March compared to the same time last year.

UBS said its investment banking arm saw profits soar 115 per cent, helped by its best performance in bond trading and equities since the onset of the bear market in 2000.

While proprietary trading has boosted most major investment banks' profits, they hope the recovery in the stock market will reduce their reliance on the form of income, which is regarded by investors as more volatile than income from clients.

Banks have in their latest reporting season been at pains to say that their income is becoming more balanced out by an upturn in mergers and acquisition and other work for clients.