BUSINESS
07/31/2012 03:48 am ET | Updated Sep 29, 2012

UBS Earnings Q2 2012: Facebook Loss Hits Bank's Profit

* Q2 net profit 425 mln Sfr vs 1.14 bln Sfr forecast

* UBS hit by 349 million franc loss on Facebook IPO

* Investment bank swings to 130 million Sfr pretax loss

* Shares slide 6 pct

By Katharina Bart

ZURICH, July 31 (Reuters) - UBS blamed its 349 million Swiss franc ($360 million)loss from Facebook's botched U.S. market debut on exchange operator Nasdaq, saying orders for the stock had been entered multiple times due to a systems failure.

The Swiss bank said on Tuesday it would pursue legal action against the bourse for what it called gross mishandling of Facebook's $16 billion initial public offering (IPO) in May. Nasdaq declined to comment.

Nasdaq CEO Robert Greifeld said on a call with analaysts last week that a report commissioned from IBM into the problems was expected this week. It is not clear whether the report will be made public.

According to UBS, some of the bank's pre-market Facebook orders were submitted several times after failing to elicit confirmation from Nasdaq, even several hours into the first day of trading. When the exchange caught up with the backed-up orders, UBS ended up sitting on far more Facebook shares than intended, the bank said.

The bank, one of Nasdaq's four largest market makers in the Facebook IPO, didn't address the issue of why it lost 10 times more than others, or whether its own traders erred in entering orders multiple times without confirmations.

Facebook is another blow to UBS, which swung to a second-quarter investment banking loss of 130 million francs from a profit of 383 million francs a year ago.

Overall net profit more than halved to 425 million Swiss francs ($433 million), missing the average 1.141 billion franc forecast in a Reuters poll of analysts.

UBS stock shares fell 6.1 percent, underperforming European banking stocks

"This is a weak set of results, but the big disappointment is the investment banking loss with drops in revenue in nearly all segments," Bank Sarasin analyst Rainer Skierka said. He rates the stock at neutral.

Also on Tuesday, rival Deutsche Bank posted a sharp decline in quarterly earnings from its investment banking and asset management businesses.

The Facebook loss came on top of a drop in investment bank income as revenue from equity derivatives wilted. UBS is usually stronger in issuing and trading equities than trading debt and commodities. By contrast, foreign exchange and bond trading held up on the year.

UBS said the euro zone debt crisis, the weak global economic outlook and the U.S. "fiscal cliff" of potential steep tax increases and spending cuts were hurting its business.

The bank said it would seek to further prune risky assets overall and at its investment bank, saying it was confident the unit could hit profit targets. The investment bank's risk-weighted assets, or RWAs, which stood at 170 billion francs in the quarter, will be cut to less than 135 billion francs in 2016, the bank said.

UBS said it was confident it would continue to gather net new assets, which totalled 9.5 billion francs in its flagship private banking arm for the wealthy.

CUTS

The bank, which is cutting about 6 percent of its staff, said it would continue to improve efficiency, without detailing further measures.

Rival Credit Suisse said two weeks ago it would cut an extra 1 billion francs in spending, part of a slew of measures to bolster its capital by $15.59 billion, including by cutting an undisclosed number of jobs.

Tom Naratil, the bank's financial chief, told journalists UBS had put aside funds for a 2012 dividend, which would be its second since the financial crisis that wrought major losses at UBS and culminated in a 2008 government rescue.

UBS, the first bank to say last March it had been subpoenaed in a probe into how banks attempted to manipulate the London interbank offered rate, or Libor, said it had appropriate provisions for all litigation.

Specifically, UBS, which has previously admitted probes into the yen and Swiss franc Libor and euroyen Tibor, has secured leniency from some justice authorities in return for cooperating with probes into the setting of Libor, a benchmark that underpins an estimated $550 trillion in financial products.

UBS signalled its exposure to Libor probes is limited to the three reference rates, and not others such as the Euro Interbank Offered Rate, or Euribor, where several banks are said to be cooperating with EU antitrust regulators.

"In order to obtain leniency or immunity, you have to find evidence to support this issue. We haven't found any evidence to support beyond the three we have already disclosed," UBS boss Sergio Ermotti said at a press conference.

EARLIER ON HUFFPOST: