Securities stoke UBS profits: London operations likely to be expanded, biggest Swiss bank says

BUOYANT securities markets helped push Union Bank of Switzerland's half-year net profits up 89 per cent to Sfr1.288bn ( pounds 590m), much of which came from UBS in London.

Group trading income at Switzerland's biggest bank rose by 144 per cent to Sfr1.546bn compared with last time. This growth, which UBS described as 'exceptional', included trading in securities, foreign exchange, precious metals, banknotes and interest rate instruments.

A spokeswoman for UBS commented: 'UBS offices outside Switzerland accounted for just under 40 per cent of group profit, up from slightly more than 20 per cent in the first half of 1992, and London is the biggest unit outside Switzerland.'

More than 2,000 jobs will be cut from the Swiss operations over the next three to four years, down from the present total of 20,000. The London operations, in contrast, are likely to be expanded if they continue to do well, the spokeswoman said.

Overall costs rose 14 per cent but personnel costs rose 20 per cent, reflecting early retirement pay-offs due to the Swiss job-slimming programme, dubbed 'Marketing 2,000.'

Total group income for the six months to 30 June 1993 rose by a third to Sfr5.480bn. This included the booming trading business, an 11 per cent increase in interest income to Sfr1.917bn and a 19 per cent increase in commission income to Sfr1.932bn.

UBS warned against expectations that it would enjoy as good a second half, since the first half's results had refelected exceptional conditions. Short-term interest rates fell faster than long-term rates, so margins had remained wide.

Capital market and corporate finance business 'soared' on the back of an international recovery in stock markets and corporate activity generally.

'As long as no unexpected major setbacks materialise, a good result for the second half of 1993 is projected, although the bank does not expect its performance in the first six months of the year to be repeated,' UBS said.

'The declared UBS objective of boosting its return on equity to 10 per cent by the mid- 1990s has already been achieved and even surpassed.'

Provisions remained high, which UBS justified as a cautious organisation increasing its rainy-day fund. Provisions and depreciation rose by 33 per cent to Sfr1.074bn.

UBS increased the value of its derivatives products by 26 per cent to Sfr2.076bn. Derivatives are used by companies to hedge against interest rate and currency risk, and this lucrative and fast-growing market is seen as a key battleground for international banks.

The bank said its Swiss operation benefited from the break-up of the European exchange rate mechanism. While depositors and investors had expected greater European monetary union, money had flown out of Switzerland for fear that the country would be excluded from the new system. Once the new system disintegrated this same money flowed back into Switzerland, particularly benefiting UBS's asset management operations.

Savings and other deposits rose by an 'impressive Sfr3bn', the bank said. Pre-tax profits for the group rose 81 per cent to Sfr1.685bn.