UBS, the world's largest wealth manager, saw net profit drop 11 percent in the second quarter as higher trading activity failed to offset a pandemic-induced slump in retail and corporate banking.

The world's largest wealth manager, saw net profit drop 11 percent in the second quarter as higher trading activity failed to offset a pandemic-induced slump in retail and corporate banking.

"As we continue to face a challenging environment, we are adapting and accelerating the pace of change, supporting our clients, employees, and the economies in which we operate, while remaining focused on our strategic priorities," Chief Executive Sergio Ermotti said in a statement.

The decline in net profit to 1.232 billion U.S. dollars beat analyst expectations for earnings of 973 million U.S. dollars in the bank's own consensus summary of 21 analysts.

Europe's first major lender to report second-quarter results, the bank's focus on wealth management with smaller global investment banking and Swiss retail and corporate banking operations has helped place it on more resilient footing during the COVID-19 pandemic than many European peers.

But a 2-percent-fall in second-quarter operating income, including 272 million U.S. dollars in expectations for credit losses, fell short of the exuberant results posted by trading powerhouses in the United States, which benefited more squarely from a spike in market activity.

In the first quarter, trading activity amongst UBS's wealthy clients had more than offset the risk of increased defaults, helping the bank to a 40-percent net profit rise.

To pay over $10 million to resolve SEC charges

A unit of UBS has agreed to pay more than 10 million U.S. dollars to resolve charges it circumvented the priority given to retail investors in certain municipal bond offerings, the U.S. Securities and Exchange Commission (SEC) said on Monday.

Over a four-year period, UBS Financial Services Inc improperly allocated bonds intended for retail customers to parties known in the industry as "flippers," who immediately resold the bonds to other broker-dealers at a profit, the agency said in a statement.

UBS registered representatives facilitated more than 2,000 trades with such flippers, allowing the firm to obtain bonds for its own inventory and improperly obtain a higher priority in the bond allocation process, according to the SEC.

The regulator also settled proceedings with UBS registered representatives William S. Costas and John J. Marvin, finding that they had "negligently" submitted retail orders for bonds on behalf of flipper customers. Costas also helped UBS traders improperly obtain bonds for the firm’s own inventory through the flippers, the SEC said.

Costas agreed to pay disgorgement and interest totaling 16,585 U.S. dollars and a civil penalty of 25,000 U.S. dollars. Marvin agreed to pay disgorgement and interest of 27,966 U.S. dollars and a civil penalty of 25,000 U.S. dollars, the SEC said.

"Retail order periods are intended to prioritize retail investors' access to municipal bonds and we will continue to pursue violations that undermine this priority," said LeeAnn G. Gaunt, chief of the SEC Division of Enforcement's Public Finance Abuse Unit.

UBS and the two representatives did not admit or deny the agency's findings, the SEC said. A spokeswoman for the firm said UBS had fully cooperated with the agency and was pleased to resolve the matter.

(Cover image via Reuters)