[ by Howard Haykin] Investment banking weighed heavily on quarterly results at UBS AG, which may be why CEO Sergio Ermotti is paring back the firm’s investment banking unit and expanding its wealth-management division.  The bank reported on Tuesday that Q2 net profits plunged 58%, in large part due to market volatility connected to the European debt crisis.  The bank took a very big hit from the Facebook IPO, losing 349 million Swiss franc, or $356 million.  And like many of its rivals, UBS had no solution for the difficult market conditions caused by the European debt crisis and Europe's banking problems. A statement issued by UBS said, "Failure to make progress on these key issues, accentuated by the reduction in market activity levels typically seen in the third quarter, would make further improvements in prevailing market conditions unlikely." Net income at the Swiss bank, which was below analysts’ estimates, as well, declined to 425 million Swiss francs for the 3 months ended 6/30, compared with a 1.02 billion Swiss francs profit for the same period a year earlier.  Operating income fell 10.6%, to 6.4 billion Swiss francs. Facebook Loss. All told, the investment banking unit posted a Q2 pretax loss of 130 million Swiss francs in the 2nd quarter.  Technical errors at Nasdaq which caused delays, messed up communications, and led to enormous confusion, caused UBS to receive more shares than its clients had ordered, according to a company statement. The bank plans to take appropriate legal action against Nasdaq to address its gross mishandling of the offering and its substantial failures to perform its duties.” Wealth Management Does Well. Despite the declining activity in its investment banking unit, UBS said its wealth-management businesses had received 13.2 billion Swiss francs of new money during the second quarter of the year. UBS continues to reduce its exposure to risky assets after a string of recent scandals, including a $2.3 billion trading loss prosecutors say was caused by Kweku Adoboli, a former trader at the bank. The bank also cut more than 700 jobs during the quarter, as part of its plan to achieve annual savings of 2 billion Swiss francs by 2013.  Last year, the Swiss firm said it would cut 3,500 jobs, with about half of the layoffs to come from its investment banking division. UBS is also subject to several investigations into the manipulation of the London interbank offered rate, or Libor.  Mr. Ermotti of UBS said the bank was in the process of conducting an internal review related to Libor and other benchmark rates.  The British bank Barclays agreed to a $450 million settlement last month with American and British authorities after some of its traders and senior executives were found to have altered the rate for financial gain. In a conference call with reporters, Tom Naratil, the bank’s chief financial officer, declined to comment on whether UBS had made specific provisions to cover potential fines connected to the manipulation of the rate.  The Swiss bank, however, set aside a further 130 million Swiss francs during the second quarter to cover litigation and regulatory issues, but did not say if the extra money was related to Libor. “We have provisioned accordingly for all matters,” Mr. Naratil said. For further details, go to [Dealbook, 7/31/12].