UBS smashes Q2 profit forecasts thanks to its surging wealth-management business - but expects a drop in client activity in Q3

• Swiss bank UBS beat second-quarter analyst expectations on Tuesday.
• The bank's net profit came in at $2 billion, higher than the $1.34 billion analysts expected.
• Its wealth management division generated a 47% increase in quarterly profit to $1.29 billion.

Top Swiss bank UBS beat second-quarter profit expectations on Tuesday as it benefited from a boom in its wealth management business, but warned of a drop in client activity in the third quarter.

UBS shares rose 4% in regular European trading.

Here are the key numbers:

• Net income: $2 billion versus Bloomberg consensus estimates of $1.3 billion
• Wealth management pre-tax profit: $1.29 billion versus consensus estimates of $1.18 billion
• Investment bank pre-tax profit: $668 million versus consensus estimates of $414.1 million

The bank attributed its quarterly success to "favorable market conditions and investor sentiment."

"Our growth in the second quarter was underpinned by the relationships we have built and strengthened throughout the pandemic and by the trust our clients placed in our people and in our firm," CEO Ralph Hamers said in a statement. "All business divisions and all regions contributed to our results."

The bank's flagship wealth management division contributed the most to results and posted $25 billion of inflows in net new fee-generating assets. Loans increased by $7 billion to $228 billion as the bank worked to strengthen relationships with wealthy clients. Recurring net fee income rose by 30%.

An increase in revenue from advising on deal-making helped the bank offset a 14% decline in market-trading earnings, driving pre-tax profit at its investment bank 9% higher.

UBS said its markets revenue would have been flat, but it incurred an additional $87 million loss from exiting remaining exposure related to the default of a client. Although it didn't name the client, the collapse of the family office of Archegos left the bank with an overall $861 million loss which ate into its first-quarter profit.

The firm warned that continued uncertainty lies ahead.

"We expect our revenues in the third quarter of 2021 to be influenced by seasonal factors, such as lower client activity levels compared with the second quarter of 2021," UBS said. "Higher asset prices should have a positive effect on recurring fee income in our asset gathering businesses. However, the continued uncertainty about the environment and economic recovery could affect both asset prices and client activity levels."

Read More: UBS reveals 25 stocks to buy with dividends 'set to surge' based on a historically accurate machine learning model - and names 2 broad sectors for investors to target