UPDATE 5-Gruebel sets $15 bln profit goal for UBS

* Targets $15 billion pretax profit over 3-5 years

* Also targets 65-70 percent cost/income; RoE 15-20 percent

* CEO says reversing outflows to take 2 years from Q1 2008

* Aims to be No. 1 bank for super-rich, top in Switzerland

* Shares fall 0.3 percent but outperform sector (Adds more quotes from executives, details)

By Lisa Jucca

ZURICH, Nov 17 (Reuters) - UBS (UBSN.VX) boss Oswald Gruebel set an ambitious three to five year target of $15 billion annual pretax profit, vowing to rebuild the loss-making bank and win back clients after the subprime crisis and U.S. tax row.

The 65-year-old German with a straight-talking reputation, conceded that turning around the Swiss bank would be difficult but said he was committed to an integrated banking model combining traditional wealth management with investment banking.

"A transformation like this is not easy," said the banking veteran, seen as a turnaround guru for reviving Swiss rival Credit Suisse (CSGN.VX).

"There will be three guiding principles: reputation, integration, execution: this is what we will stand for in the market," Gruebel told a packed Zurich auditorium. "We want to ensure that what has happened to UBS should not happen again."

Chief Executive Gruebel, speaking at UBS's (UBS.N) first strategic presentation since his appointment, said it would take about two years to reverse client withdrawals that are hitting the bank's wealth management division, starting from the first quarter of 2008.

His profit target would bring UBS slightly above its pre-crisis performance in 2006, and Gruebel said this would be achieved through a new culture of disciplined risk-taking, strict cost and capital control, and adherence to regulation to avoid a repeat of past mistakes.

Gruebel's new targets for the next three to five years also include a cost-to-income ratio of 65 to 70 percent compared to 110 percent now, and return on equity of 15 to 20 percent, compared to negative 16 percent.

"The long time horizon for the turnaround could require a lot of patience and nerves of steel from investors." said Kepler analyst Mathias Bueeler.

UBS also said planned regulatory changes to bank capital rules in Switzerland and elsewhere would limit its ability to distribute dividends for some time.

UBS shares, which have risen 18 percent this year while the wider DJ Stoxx European banking sector has gained nearly 60 percent, were down 0.3 percent at 17.43 Swiss francs at 1226 GMT, outperforming its peers .SX7P.

The stock has consistently underperformed rivals in 2009 and fell again after UBS posted a larger-than-expected third quarter net loss on Nov. 3 of 564 million Swiss francs, the seventh out of eight straight quarters the Swiss bank has been unprofitable.

UBS has not given any guidance for the full year, but while its investment bank has recovered at an operating level, the bank is seen heading for another loss, albeit much smaller than last year's monster pretax loss of almost 28 billion francs.

Analysts expect UBS to make a pretax profit of 7.7 billion francs in 2010, according to Thomson Reuters I/B/E/S data.

CLIENT TRUST NEEDED

Gruebel pledged to boost UBS' number one position as banker to the very rich, and maintain its position as the main bank in Switzerland while extending its leading position in Asia.

UBS, the world's No. 2 wealth manager with $1.7 trillion in assets and the leader in the super wealthy space, is suffering client withdrawals across the board. "This turnaround will be a journey, it won't be an event," said Robert McCann, an ex-Merrill Lynch wealth management boss brought in to restore UBS' battered American wealth franchise.

The Swiss banking flagship had to be rescued by the state last year and stood accused of helping rich Americans dodge taxes in a U.S tax litigation that is now settled.

The Swiss government revealed on Tuesday it has agreed to hand over the names of wealthy U.S. clients of UBS with undeclared accounts holding over 1 million francs as part of the UBS tax settlement that pierces strict Swiss bank secrecy. [ID:nZAT010598]

"The UBS turnaround story will only really get traction when the hard facts improve substantially and the key element remains the outflow of client assets," Wegelin analysts Marco Schwender and Martin Koch wrote in a note.

UBS said net new money at the asset management division would be positive again in 2010.

Gruebel also said the recovery of UBS' investment bank, blamed for bringing the whole group to its knees after risky bets on the U.S. subprime market, was "already evident".

He stressed that the rebuilding of the investment bank would go through the fixed-income division, the segment which led UBS to make more than $50 billion of writedowns, but with a focus on performance rather than leverage.

UBS' investment bank has made $4.3 billion revenues this year, nearly eight times less than sector leader Goldman Sachs and one fourth of revenues at Credit Suisse. <For a related graphic, go to: here > (Additional reporting by Rupert Pretterklieber and Emma Thomasson; Editing by Hans Peters and Elaine Hardcastle)