Editor's note: This article has been corrected to reflect that UBS had pre-existing hedge fund activity within its Global Asset Management (GAM) unit prior to the transfer of Dillon Reed Capital Management to GAM.

Yesterday morning, the world's largest wealth manager, UBS AG (NYSE:UBS), reported second-quarter earnings that could put a grin on a stolid Swiss banker. Just how well did these "gnomes of Zurich" do (to borrow famed British politician Harold Wilson's indecorous expression)? Let's take a look (Swiss franc figures are restated in U.S. dollars at the rate of 06/30).

Net profit attributable to UBS shareholders from continuing operations was $2.53 billion, up 49% year over year. All business units posted strong results, with Global Wealth Management/Business Banking, the Investment Bank, and Global Asset Management posting increases in operating income of 29%, 57%, and 52%, respectively. UBS appears to have done a creditable job of controlling costs and avoiding any missteps in its Investment Banking unit during a period of increased market volatility.

Of particular note, Global Wealth Management's net new money (new assets) for the quarter was $25 billion, a record increase (despite the poor showing of U.S. Wealth Management, where net new money was $0.6 billion). This underscores the strength of the Wealth Management activity, which anchors the firm by providing an enviable stream of stable revenues -- fee and other income represented 72% of total income in the second quarter versus 28% for trading income, which is inherently more volatile.

Are there any clouds that threaten this sunny day? Part of the Investment Bank's earnings were attributable to one-time gains from the sales of stakes in the London Stock Exchange, Babcock & Brown, and the EBS Group, for a total of $283 million, according to an estimate from Keefe, Bruyette & Woods Ltd. analyst Matthew Clark. If we strip this out of the Investment Bank unit's pre-tax profit, the year-over-year profit increase drops from 57% to 26%, which doesn't compare favorably with peers Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS). During the earnings call, UBS CEO Peter Wuffli argued that these transactions are part of the normal course of business and that UBS expects to capture similar opportunities in the future. That may be true, but it begs the $283 million question -- with what frequency? The proper manner to treat these gains is somewhat subjective, but I think they deserve at least a partial discount.

Looking forward, I'll be curious to see how successful UBS is with Dillon Read Capital Management (DRCM), which is the bank's new hedge fund business. DRCM, a proprietary trading group, was transferred from the Investment Bank to Global Asset Management on June 5 and will launch funds for outside investors during the second half of the year.

This initiative will broaden the Global Asset Management (GAM) unit's product offering with additional hedge funds that can generate lucrative fees (including performance fees) exceeding those on traditional investment products. GAM already has approximately $12 billion in assets under management in single-manager hedge funds in its Alternative & Quantitative Investments Group. Perhaps the addition of DRCM will help UBS close the gap with rival Goldman Sachs, which is now the largest hedge fund management firm in the world, with $21 billion in single-manager funds.

As it stands, investors cheered the earnings report; UBS shares closed up almost 6% on the NYSE on Tuesday. While the current price isn't particularly cheap, I think this quarter is evidence that this well-managed bank deserves its premium over its peer group.

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* Based on closing prices on 08/14 for a custom peer group containing Bank of America (NYSE:BAC), Barclays (NYSE:BCS), Citigroup (NYSE:C), Deutsche Bank (NYSE:DB), JPMorgan Chase (NYSE:JPM), Merrill Lynch (NYSE:MER), Morgan Stanley and Goldman Sachs. Average P/BV and P/E multiples are weighted by market capitalization. Average earnings growth rate is unweighted.

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Fool contributor Alex Dumortier has no beneficial interest in any of the companies mentioned in this article. He welcomes your (constructive) feedback. The Motley Fool has a strict disclosure policy.