LONDON Private clients who have stood by UBS UBSN.VX through repeated scandals will have their faith tested by the Swiss bank's admission of rate rigging, investors say.
Chief executive Sergio Ermotti is winding down much of UBS's riskier investment banking arm and believes a return to managing money for the global rich will allow it to earn its way out of trouble.
But the jewel in the crown of the disgraced bank will only keep its luster if it maintains the trust of millionaires keen to park their fortunes in the safest possible hands.
"UBS has been involved in an endless series of incidents in the last couple of years and it will take some time - several years without more damaging news - to restore trust," said one Zurich-based investment manager with a stake in the bank.
UBS was fined $1.5 billion by a posse of international regulators after admitting manipulation of the Libor interest rate, a global benchmark which underpins financial transactions worth trillions of dollars.
Criminal charges could be brought against staff for their role in fixing rates and a probe by Hong Kong's de facto central bank into alleged misconduct could yet lead to further fines in 2013.
With its reputation under attack, investors say there's no way of knowing how many risk-conscious clients will stick around while UBS atones for its Libor sins.
"Judging whether individual clients, charities or foundations will leave the bank as a result of this is very difficult to say," said Neil Wilkinson, portfolio manager at Royal London Asset Management.
"The money flows we have seen in Q4 so far would suggest not. But reputational hits like these are difficult to manage and tricky to measure," he argued.
A UBS spokesman on Thursday declined to comment further on the bank's Wednesday statement that it expected net new money into its wealth management businesses to be positive in the fourth quarter.
UBS is the world's number two wealth manager by assets, with $1.55 trillion, second only to Bank of America which runs $1.67 trillion for its clients, according to an industry survey compiled by private banking consultancy Scorpio Partnership.
The bank's wealth management business delivered record results in the third quarter of 2012, with pre-tax profits of 600 million Swiss francs while the group suffered a 2.2 billion francs third quarter net loss.
One London-based private banker at a rival global institution said his customers were typically most concerned about the solvency of the bank when choosing where to put money.
Nevertheless, reputation comes a close second on the list of considerations and there could be a lagging effect of Wednesday's fine on UBS's flows of client assets, he said.
"People care most about the financial stability of the institution...because they are worried about losing their money. With reputation, it's more about 'Do I want to be associated with them?'. So it's a longer term decision," he said.
The private banking industry continues to reel from the fallout of the financial crisis which saw many of the global rich lose money on investments their bankers had recommended, such as Bernard Madoff's multi-billion dollar ponzi scheme.
UBS's penance for its role in Libor rigging adds to a litany of embarrassments both to itself and across the industry.
The Swiss bank's private banking staff have already had to hit the phones appeasing clients and telling them their money was safe after rogue trader Kweku Adoboli lost the bank $2.3 billion in a trading mishap which later landed him in jail.
UBS is not the only bank who has been forced to defend its reputation in recent times.
Earlier this year, ex-Goldman Sachs employee Greg Smith published a scathing resignation letter in the New York Times which said some executives referred to their customers as 'muppets', British slang for idiots.
Goldman Sachs CEO Lloyd Blankfein said a review of emails and employee documents did not turn up evidence to support Smith's allegations.
Private banking sources hit by such episodes insist clients remain loyal despite tarnished reputations.
A senior executive at Barclays' wealth division said clients were unperturbed by the bank's own crisis after it was fined earlier this year for its role in the libor rate fixing affair and only one individual closed their account.
"What was really interesting about the time was client support was off the chart," the executive said.
A senior Goldman Sachs banker reported a similar trend after Smith's expose of alleged contempt for clients, denying any backlash apart from "the odd sarcastic thing about muppets".
But Cath Tillotson, managing partner at Scorpio Partnership which researches the wealth management industry said while top bankers may put a brave face on the individual mishaps, the industry is steadily losing credibility with its key customers.
"Everybody I sit down and talk to at the moment in private banking is in the depths of despair. It's not been an easy year... Institutions have been more focused on regulation than on clients," she said.
Millions in assets that would have gone to investment portfolios run by wealth managers have already been driven elsewhere, said Tillotson, with London property, private equity and gold among the main beneficiaries.
UBS shareholders will be watching closely in early 2013 for earnings statements that shed light on whether its Libor fines have prompted worried clients to move their bulging accounts.
"If they can navigate this period successfully, the business looks attractive," said Paras Anand, European equities head at Fidelity Worldwide Investment, one of UBS's biggest shareholders.
(Reporting by Chris Vellacott and Sinead Cruise; editing by Philippa Fletcher)