UBS, Switzerland’s biggest bank, became the latest financial group to warn investors of the damaging effects of recent stock market turbulence yesterday when it said that its profits would suffer in the second half if markets continued to fluctuate wildly.

Banks and funds have been battered in recent weeks by a plunge in global equities, triggered by a repricing of risk in the credit markets after months of losses on sub-prime mortgage-backed securities.

After rebounding on Monday from lows seen last Friday, stock markets succumbed to renewed upheavals yesterday, with the FTSE 100 losing another 75.5 points, or 1.2 per cent, to close at 6,143.5. In New York, the Dow Jones industrial average suffered another day of heavy losses and closed down 207.61 points, or 1.57 per cent.

Jean-Claude Trichet, the President of the European Central Bank, urged calm. “I call on all parties concerned to continue to keep their composure,” he said. “It will help to consolidate a smooth return to a normal assessment of risks in liquid markets.”

Markets’ anxieties were also deepened by confirmation from Sentinel, a US money management group which oversees $1.6 billion in assets, that it is seeking to halt investor redemptions.

AQR, a very large Connecticut-based hedge fund specialising in computerised trading, which has been a focus of market rumours, was also thought to have secured a $1 billion emergency cash infusion from investors after suffering heavy losses.

Earlier, UBS said that if markets’ volatility persisted, its investment bank would report a “very weak trading result” for the third quarter. “This makes it likely that profits in the second half of 2007 will be lower than in the second half of last year,” it said.

Shares in Citigroup fell 1.6 per cent in morning trading after Sanford Bernstein, the brokerage, estimated that the world’s biggest bank could lose up to $3 billion (£1.5 billion) in the third quarter, after marking down the value of leveraged loans to private equity firms and losses on sub-prime investments. Sub-prime losses have forced Bear Stearns and UBS to close hedge funds. Citigroup declined to comment.

UBS’s results were the first to be announced since Peter Wuffli was toppled as chief executive last month to be replaced by Marcel Rohner, head of UBS’s wealth management business.

UBS reported pretax profits of SwFr6.2 billion (£2.6 billion) for the second quarter (Q2), up from SwFr4.1 billion at the same time last year.

A SwFr384 million pretax loss from the closure of Dillon Read Capital Management (DRCM), the New York hedge fund division, was offset by a SwFr1.9 billion gain on selling a 20 per cent stake in Julius Baer, the wealth manager.

The $4 billion DRCM funds closed in May, less than two years after their launch, after sustaining a SwFr150 million loss on sub-prime mortgages.

Of the charge taken on closure, SwFr241 million was staff compensation. UBS said it repatriated SwFr1.5 billion to outside investors, who saw a return of about 11 per cent, after fees.

DRCM’s investment portfolio was transferred to UBS’s investment bank.

Analysts believe it could still be sitting on as much as SwFr20 billion in mainly sub-prime investments by DRCM.

The investment bank has recently been hit by high-profile departures. But the business revealed a record SwFr1.8 billion pretax profit for Q2, up 3 per cent.

Revenues in UBS’s equities business jumped 36 per cent and those in investment banking by 65 per cent, despite heavy losses in fixed income blamed on the US sub-prime shake-out.

Dealogic research showed the investment bank grew global market share to 5.8 per cent in the first half, from 4.9 per cent a year earlier.

Analysts were surprised by the negativity in Mr Rohner’s first results statement.

“While a cynic would suggest it is in the new CEO’s interest to ‘kitchen sink’ bad news, it is still notably more downbeat in tone than that in recent weeks by Credit Suisse and Deutsche Bank,” Keefe, Bruyette & Woods said.

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