UBS sees tough markets ahead as Q3 profit drops

Swiss bank UBS maintained its gloomy outlook on market conditions after third-quarter net profit plummeted and it increased provisions for litigation costs related to mis-selling of mortgage-backed securities.

"Underlying macroeconomic uncertainty and geopolitical tensions continued to contribute to client risk aversion and generally low transaction volumes. Lower than anticipated and negative interest rates still present considerable headwinds," it said on Friday. "These conditions are unlikely to change in the foreseeable future."

It said implementing Switzerland's new bank capital standards and the proposed changes to the international regulatory framework for banks would lead to increasing capital requirements and costs.

It increased mortgage-related litigation provisions to USD 1.41 billion from USD 988 million at the end of June.

The world's largest wealth manager said net profit for the three months to end-September fell to 827 million Swiss francs (USD 832.7 million) from 2.1 billion francs in the same quarter last year.

The fall was particularly steep because the year-ago numbers benefited from a net tax benefit of 1.3 billion francs.

Pre-tax profit rose 11 percent to 877 million francs, thanks to a strong business in its domestic Swiss markets and cost cuts.

UBS Chief Executive Sergio Ermotti had warned at the end of September that political uncertainty and concerns over global growth meant the bank had seen generally low transaction volumes.

UBS did not benefit from the same surge in investment banking revenues experienced by U.S. banks since its business is more geared towards equities and Wall Street earnings were boosted by bond trading.

It is the downside to UBS's widely lauded post-financial crisis strategy to focus on capital-light wealth management while scaling back in investment banking and fixed income, where earnings are more volatile and which consume more capital.