UBS pledges light at end of tunnel despite crisis

By Lisa Jucca

BASEL, Switzerland (Reuters) - UBS AG (UBSN.VX) made a small profit in the third quarter after a year of losses, it said on Thursday, lifting shares as it signalled it had started to turn the corner even as the credit crisis engulfs many peers.

UBS's reputation as an icon of Swiss banking stability was badly bruised after investments in toxic U.S. assets forced the world's largest wealth manager to make $42 billion of writedowns, more than any other bank in Europe, and to slash 7,000 jobs.

UBS said on Thursday it had substantially reduced its U.S. commercial and residential mortgage-related assets, mainly via disposals, and promised the over 2,000 small and large investors gathered for an extraordinary shareholder meeting that a restructuring plan should help it regain global prominence.

Chairman Peter Kurer said UBS had fared "reasonably well through this turmoil of the last weeks" as it had responded quickly to the crisis, recapitalising the bank early with nearly $30 billion of fresh cash and overhauling its business model.

"We want to be an accepted industry leader again. And in Switzerland, our home country, we want to be a respected national champion," Kurer said. "We will work hard and with humility on these ambitious objectives."

Shareholders voted four new independent members onto UBS's board, in a further move to strengthen governance at the bank.

Kurer launched a radical turnaround plan in August that involved separating UBS's troubled investment bank from its prized wealth management business after taking over from the highly-criticised former chief Marcel Ospel in April.

But the bank's future was called into question again after the collapse of Lehman Brothers LEH.N sparked a bout of U.S. and European state intervention to prop up the financial sector.

TURNING POINT?

In a statement ahead of the meeting, UBS said it expected to report a "small profit" for the third quarter when it announces results on Nov. 4. It gave no figures on new writedowns, which analysts put at 3 billion Swiss francs ($2.7 billion), or on whether it has stemmed outflows from its wealth management arm.

The bank is the first to give indications about how it fared in the quarter, a period of unprecedented upheaval in the financial industry landscape.

"We regard this as marking a turning point for UBS, in terms of market perception, but also in terms of client perception," said Deutsche Bank analyst Matt Spick, who upgraded the stock to a "buy" although risks remain, including for investment banking.

UBS's shares were up 10.8 percent at 21.82 Swiss francs at 1330 GMT, among the top gainers in a 4 percent firmer DJ Stoxx European banking index .SX7P, as the sector advanced on hopes the U.S. bailout plan for Wall Street will be salvaged.

Kurer said 2009 would be "an overall profitable year" despite what he called "an extremely precarious situation" on the markets that he expected to last into next year. He said the bank would be able to pay a dividend again in 2010.

UBS' stock price is still down two-thirds from a year ago, when it reported its first loss in nine years. It tumbled to 15.18 francs on Sept. 16, its lowest level since listing in its current form in 1998, after Lehman collapsed.