UBS chief Gruebel needs to prove turnaround skills

Mon Feb 7, 2011 7:00pm EST

* Q4 results due 0545 GMT * Q4 net profit seen at 1.54 bln Sfr-Reuters poll

* Total wealth management net new money seen at 2.5 bln Sfr

By Martin de Sa'Pinto and Jason Rhodes

ZURICH, Feb 8 (Reuters) - UBS UBSN.VX (UBS.N) needs to show a weak third quarter was a blip when it unveils annual results on Tuesday to reassure investors that its turnaround remains on track.

A poor fourth quarter would pile the pressure on Chief Executive Oswald Gruebel, lured out of retirement to revive Switzerland's biggest bank after achieving the same feat as head of arch rival Credit Suisse (CSGN.VX)(CS.N).

UBS's earnings will be hurt by the impact of a strong Swiss franc. But after the third quarter wobble, the bank will have to reassure on key data on its wealth management and investment banking performance.

Domestic rival Julius Baer(BAER.VX) reported higher-than-expected new client money on Monday, but the Swiss franc's rise pressured margins, as most of the bank's costs are booked in francs, while much of its operating income is in foreign currencies.

"We would expect UBS and Credit Suisse this week to see similar trends in private banking, i.e., healthy net new money but weak revenue and higher costs," said analysts at investment bank Nomura in a note. [ID:nLDE71610C]

Net new client money into UBS's wealth management unit is expected to be flat to slightly positive, but is unlikely to be substantial enough to prevent the bank reporting full-year outflows for the third year in succession.

UBS also needs to show it can deliver solid investment banking profits after a reduction in high-risk but potentially very profitable proprietary trading and after a surprise investment banking loss in the third quarter.

Investment banking revenues at most major banks have been hampered by weak trading activity in the second half of 2010, occurring at a bad time for UBS, which hired new bankers to revive the business.

"They have built the business in anticipation of a pickup in global economic growth and client confidence. They repositioned the business for the environment they expected, but even if they are right it will take time to filter through to results," said analyst Matthew Clark at Keefe, Bruyette & Woods.

UBS has worked to rebuild its investment bank under Carsten Kengeter, whose 13.9 million franc bonus for 2009 was unpopular in Switzerland when the bank reported a net loss in the same year. CEO Gruebel declined a bonus in 2009.

The bank, which received a government bailout after taking massive hits on toxic assets in the financial crisis, is expected to to say it will pay out less in bonuses for 2010 than in the previous year. [ID:nLDE71505W]

(For a poll of UBS earnings estimates please click on [ID:nLDE71225Y]

(Editing by Steve Slater and Jane Merriman)