ZURICH UBS's UBSN.VX private bank attracted the most customer money for six years in the first quarter, recovering from a poor end to 2012 and backing the Swiss bank's drive to focus on managing wealthy clients' cash.
UBS's investment bank also beat analyst expectations, countering skepticism that largely exiting the fixed income business - including cutting 10,000 jobs across the bank - would sound the unit's death knell.
"While it is too early to declare victory, we have shown our business model works in practice," UBS Chief Executive Sergio Ermotti told analysts in a conference call on Tuesday.
UBS's shares were up 5.7 percent to 16.6 Swiss francs at 0850 GMT (4.50 a.m. ET), within a 1.1 percent firmer European banking sector index .SX7P, helping narrow a performance gap with rival Credit Suisse CSGN.VX that has opened up this year. Credit Suisse, trading ex-dividend, was 3.1 percent lower.
"These figures should do a lot to reassure the restructuring of UBS and its strategic reorientation is on track," Bank Sarasin analyst Rainer Skierka said. He rates the stock at buy and Credit Suisse at neutral.
The result lends credibility to the attempts by UBS, the second-largest private bank in the world after Bank of America (BAC.N), to reinvent itself following a series of scandals, including a $1.5 billion penalty for manipulating Libor and other benchmark interest rates.
The private bank won 15 billion francs ($16 billion) in fresh client funds, the highest since 2007, before the financial crisis and a U.S. probe into UBS for helping wealthy Americans dodge taxes caused more than 200 billion francs of withdrawals.
Ermotti said rich clients were attracted by the bank's strong capital position, noting the recent banking crisis in Cyprus had highlighted the importance of capital strength.
UBS said it had become the first global bank to bring capital above the key 10 percent ratio to risk-weighted assets demanded by new regulations, posting a 10.1 percent common equity Tier 1 capital ratio in the quarter.
Credit Suisse, which last week also reported healthy investment banking results, has a comparable ratio of 8.6 percent.
Deutsche Bank (DBKGn.DE), meanwhile, raised 2.96 billion euros ($387.8 billion) on Tuesday, part of a long-awaited capital increase to beef up its balance sheet.
CAUTION FOR Q2
UBS's overall net profit slipped 5 percent to 988 million francs but beat analysts' average forecast for 601 million.
The bank recorded a 2.51-billion-franc net loss last year due to the restructuring to focus on private banking, which must deliver the bulk of the profit in future as the investment bank sells risky positions.
Fees from trading and transactions at the private bank perked up on a "significant uptick" of client activity in the first six weeks of 2013, particularly in Asia ahead of the Chinese New Year, UBS said. The unit's pretax profit surged 67 percent on the quarter.
UBS cautioned that economic worries might slow trading by wealthy clients and hit second-quarter revenue, margins and fresh inflows. But it was confident it would keep winning net new money, a key bellwether for future revenue.
UBS's investment bank swung to a pretax profit of 977 million francs, driven by its foreign exchange business - where it maintains a strong position - due to currency volatility. The sale of a proprietary trading business also won UBS 55 million francs. The advisory arm won a large private transaction, which bolstered equity capital markets.
The unit hiked revenue 20 percent using 10 percent less of its balance sheet, and 15 percent fewer staff, the bank said.
In total, UBS cut nearly 2,461 jobs on the year, part of the overall 10,000 cuts announced last October.
Like many banks, UBS is shrinking riskier assets because they soak up costly capital. The bank cut risk-weighed assets back to 259 billion francs in the quarter, within striking distance of its year-end target of 250 billion.
($1 = 0.9368 Swiss francs)
(Editing by Emma Thomasson and Mark Potter)