At first glance a “modest net profit” for UBS sounds pretty good in a quarter in which a rogue trader burned $2 billion.
But on closer inspection, courtesy of FT Alphaville, it turns out the profit was created by cashing in one-time adjustments, unrelated to quarterly performance:
The “modest profit” is due to some “funnies”: a Credit Valuation Adjustment of SFr 1.5bn and a gain on the sale of unspecified “treasury related investments” of SFr 0.7bn.
This involved realising profits accumulated on US and UK government bonds acquired by the private bank as part of its normal hedging activities, according to the FT. The capital gain had arisen because interest rates had fallen.
FT Alphaville speculates that a bad trading quarter — even for the non-rogue traders — may explain this discrepancy.