UBS AG, Switzerland's biggest bank, reported a third consecutive quarterly profit, beating analysts' estimates on higher-than-expected trading revenue.
It reported net income of $1.91 billion, compared with a net loss of $1.33 billion a year earlier.
UBS' investment bank reported a smaller decline in trading revenue than the average of its competitors from the first quarter as the European sovereign debt crisis made clients reluctant to trade.
Chief Executive Officer Oswald Gruebel said he is "confident" about the future after withdrawals from UBS' wealth management businesses slowed.
"These results imply that UBS has, contrary to our thesis, managed to turn around the investment bank," said Dirk Hoffmann-Becking, an analyst in London at Sanford C. Bernstein, who has an "underperform" rating on UBS.
"The performance appears materially more robust than its peers'."
Pretax profit at the investment bank rebounded to $1.25 billion from a $1.76 billion loss a year earlier.
The unit generated $2.92 billion from trading stocks, currencies, bonds and commodities in the second quarter.
The 10% decline from the first three months of the year compares to the average 34% shrinkage reported by Zurich-based Credit Suisse Group AG; Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley in New York, as well as Bank of America Corp. in Charlotte.
"Our portfolio of businesses is increasingly able to generate competitive returns in a variety of market conditions, and our risk management framework has proven robust," Gruebel said in a statement.
"I remain confident in our future and I firmly believe that we have the right strategy in place."
The bank still has "a lot of catching up to do" in equities trading after its market share eroded during the credit crisis, Gruebel told analysts and reporters in Zurich.
In fixed-income trading, a bank the size of UBS should be reporting quarterly revenue of $3.81 billion, he said.
Withdrawals from UBS' wealth management units slowed to $7.71 billion in the second quarter, from $14.66 billion in the first quarter. Wealthy clients pulled out a net $231.78 billion in the two years through March 31 after UBS' credit-crisis losses, pressure on Swiss banking secrecy laws and departing client advisers.
The wealth management and Swiss bank division reported a 21% increase in pretax profit, to $1.08 billion, and the Americas division of the wealth management business had a pretax loss of $63.8 million on restructuring charges of $139 million.
UBS is "about to see the turning point" in client-fund flows in the Americas, Chief Financial Officer John Cryan told journalists on a conference call.
Outflows from the wealth management and Swiss bank divisions related mainly to cross-border assets booked in Switzerland, he said.
UBS and its largest Swiss rival, Credit Suisse, passed stress tests that included a global economic recession, a slump in financial markets and "very sharp shocks" in some European states, Switzerland's financial regulator said July 23.
The banks maintained Tier 1 capital ratios in excess of 8% in the face of "particularly severe" scenarios, the regulator said.
Credit Suisse last week reported a second-quarter profit of $1.51 billion, thanks to a tax credit and gains on the company's own debt. It attracted $13.14 billion in net new funds to its wealth management business, and the securities unit reported a 53% drop in pretax profit as Europe's sovereign debt crisis deterred clients from trading.
The crisis is creating "more headwinds" for UBS' bid to reverse withdrawals this year, Juerg Zeltner, the head of wealth management, said in an interview this month.
Clients are uncertain about what to do with their money, he said.
"We're still hopeful that we can turn the situation around by the end of the year," Cryan said Tuesday.
"But it's not entirely in our control."
The bank is "relieved" that the U.S. cross-border case, in which UBS was accused of helping clients evade taxes, is drawing to a close, Zeltner said.
This will help the company hire more client advisers after 1,149 departures in 2009, he added.
UBS aims to start making progress during the next six months toward its target of reaching a total of 4,700 advisers, he said.
The total fell by 26, to 4,112, during the second quarter.
The price of hiring "good people" is rising around the world, Gruebel said.
The bank doesn't see "a squeeze" in Asia as a result of competitors trying to expand there, he said.
The gross margin at the wealth management and Swiss bank division, or the amount of revenue the bank earns on assets under management, grew to 95 basis points in the second quarter, from 93 in the previous three months.
UBS reiterated its goal of boosting this margin to more than 100 basis points during the next three to five years.