Switzerland's biggest bank UBS posted a 14.5 per cent year-on-year drop in second-quarter net profit on Friday, on the back of lower earnings at its wealth management and investment banking businesses.

The world’s largest wealth manager said net profit for the three months to the end of June was 1.034 billion Swiss francs ($1.1 billion), down from 1.2 billion francs a year ago.

This was still ahead of the average estimate of 680 million francs in a Reuters poll.

Disciplined on risk

"We achieved this strong result by helping our clients navigate continued difficult market conditions, while staying disciplined on risk and further reducing cost," chief executive Sergio Ermotti said in a statement.

UBS, which has refocused its business more towards wealth management and away from investment banking since the financial crisis, said it had achieved 1.4 billion of its end-2017 cost savings target of 2.1 billion francs.

Savings would help pick up some of the slack from a drop-off in revenue, brought on by turbulent financial markets, negative interest rates and restrained client activity.

The bank said tough market conditions are “unlikely to change in the foreseeable future” but that it was well placed to benefit “from even a moderate improvement in conditions”.

Capital ratio

The bank’s common equity tier 1 capital ratio, a measure of capital strength and which UBS has set as a benchmark for its dividend, was 14.2 per cent, up from 14 per cent in the first quarter.

UBS aims to return at least half its profits to shareholders if it maintains capital of at least 13 per cent under global rules and 10 per cent when applying its own stress tests.

The dividend is viewed as one of the main attractions of holding UBS shares but results published in May prompted fears the bank may be unable to raise the payout to shareholders.

Mr Ermotti said at the time the priority was to protect the “baseline” dividend and implement a progressive dividend policy.

Second-quarter net new money inflows – seen as a volatile but important indicator of future earnings in private banking – totalled aix billion francs at its wealth-management unit and $2.4 billion francs at its wealth-management Americas business. – (Reuters)