UBS quarterly profit doubles, a crescendo for CEO Ermotti's swan song

By Brenna Hughes Neghaiwi

ZURICH (Reuters) - UBS <UBSG.S> on Tuesday posted a 99% jump in third-quarter profit on heavy turnover in global markets, helping the bank to a strong performance in investment banking as well as an unexpected rise in earnings for wealth management.

Net profit for the world's largest wealth manager climbed to $2.1 billion for the July-September period, handily beating expectations for $1.557 billion.

"Our third quarter results continue to demonstrate that our strategy is differentiating us," Chief Executive Sergio Ermotti said in his last month at the helm of Switzerland's biggest bank. He is due to be replaced in November by former ING <INGA.AS> head Ralph Hamers.

"UBS has all the options open to write another successful chapter of its history under Ralph's leadership," he said in a statement.

The sharp profit rise for Europe's first major lender to report third-quarter results follows a mixed performance for big U.S. banks that saw those focused on trading clocking big gains while retail banks took a hit from the pandemic.

UBS' investment banking division saw pre-tax profit jump 268% during the quarter thanks to a spike in trading and equity capital markets work which more than offset a fall for its advisory business.

Revenue in both its equities and foreign exchange, rates and credit units was up just over 40% compared to a year earlier.

Asset management saw profits grow six times from a year ago.

Despite flagging recurring fees - which rely on overall market performance - and a client shift into lower-margin funds - wealth management posted an 18% rise in pre-tax profit thanks to high levels of client transactions and as the bank added $10 billion in net new loans. Analysts had expected earnings to fall in the bank's core division.

Assets under management in that division rose to an all-time high of $2.754 trillion. Net new money fell to $1.4 billion, however, due to a $4 billion withdrawal related to the assets of one single client in the Europe, Middle East and Africa region.

UBS said it has so far accrued $1 billion for a cash dividend to be paid out next year, and has also set aside $1.5 billion in capital reserves for potential share repurchases.

NOT WITHOUT IRONY

The robust showing by UBS' investment bank marks an ironic sendoff for Ermotti, who during his near-decade at the helm radically shrank the division and ramped up its focus on serving the world's rich.

He also wound down most of UBS' fixed income business, a source of volatile earnings and the biggest trading fraud in British history, to focus on wealth management in a strategy soon followed by cross-town rival Credit Suisse <CSGN.S>.

But, as Ermotti hands over to Hamers, wealth management is contending with fierce margin pressure as well as rising global competition from powerhouses including U.S. giant Morgan Stanley <MS.N>.

Morgan Stanley last week crushed Wall Street profit estimates, with wealth management revenues up 7%, while smaller Swiss wealth management rival Julius Baer <BAER.S> on Monday beat expectations on stronger client inflows.

So far this year, UBS' shares have dropped around 12%, better than the 25% plus falls experienced by Credit Suisse and JPMorgan <JPM.N> but underperforming Morgan Stanley stock which is up around half a percentage point.

Since Ermotti took the reins in September 2011, the bank's stock has seen a total 10% price gain. But its value has more than halved from a peak above 22 francs per share in 2015 under the weight of negative Swiss interest rates and geopolitical pressures.

Over that same period, Credit Suisse shares have halved in value, while JPMorgan <JPM.N> and Morgan Stanley shares have each more than tripled, reflecting the stronger position of Wall Street lenders in the wake of the global financial crisis.

(Reporting by Brenna Hughes Neghaiwi; Additional reporting by Rachel Armstrong; Editing by Carmel Crimmins and Edwina Gibbs)