UBS says money outflows slowing, wary on fourth quarter

ZURICH (Reuters) - UBS AG UBSN.VX said a state bailout was helping stem client money outflows, but it needed stable markets to revive its key wealth management business and could take a 6 billion Swiss franc ($5.13 billion) accounting hit this quarter.

The logo of Swiss bank UBS is pictured on a building in Zug October 17, 2008. REUTERS/Michael Buholzer

The world’s largest wealth manager had already reported most of its third-quarter figures, including a small profit, last month when it announced it was getting a 6 billion franc capital injection from the Swiss government and was also unloading $60 billion of risky assets into a Swiss National Bank (SNB) fund.

UBS, which has made more writedowns than any other bank in Europe, said on Tuesday it had seen “encouraging signs for net new money” since the October 16 central bank deal. It reported net outflows of 83.6 billion francs for its core wealth management and asset management divisions in the third quarter.

UBS Chief Financial Officer John Cryan told Reuters the pace of withdrawals had slowed down in the fourth quarter.

But he said the bank expected investors to continue to sell assets for several quarters and, although the worst was over, UBS would not be able to return to strong growth yet.

“Before we can see strong inflows we need to see more stability in the markets,” Cryan told Reuters in an interview.

“We know we need to pull our socks up to motivate our client-facing people and re-establish UBS as the bank it used to be,” he said, but added: “We are not miracle men and cannot change the way the market operate.”

UBS shares were down 1.06 percent to 18.75 Swiss francs at 6:40 a.m. EST, underperforming a 3.15 percent stronger Dow Jones index of European bank stocks .SX7P. UBS' stock is down nearly 60 percent since the start of the year against a 52 percent fall for the European index.


Switzerland’s banking champion, whose reputation was tarnished in the subprime crisis and is under public pressure to return executive bonuses, said it expected market conditions to remain “challenging” and shrinking client assets to affect fees.

UBS, which has changed its top management this year and is undergoing a massive restructuring, will give an update on client flows at an extraordinary shareholder meeting on November 27.

“Management claims the trends after the settlement with the SNB have been encouraging, but we have seen these statements before,” said Dirk Becker, analyst at Kepler Capital Markets.

“Our impression is that it might take a while before UBS gets back to meaningful inflows.”

Cryan said UBS was sticking to its goal of returning to profit in 2009 while reducing its huge balance sheet.

He said the bank, which would have a Tier 1 capital ratio of 11.9 percent -- a solid base by European standards after the state cash injection -- was still negotiating new capital requirements with the Swiss banking regulator.

He said he expected the bank to take a 2 billion Swiss franc hit in the fourth quarter, reversing credit gains as spreads on its debts have narrowed after the central bank deal. UBS also expects a charge of about 4 billion francs on equity sold to the central bank fund in the fourth quarter.

“The total loss is about 6 billion Swiss francs. It cannot be offset by new revenues. They will show a loss in the fourth quarter,” Georg Kanders, an analyst with WestLB, said.

The Swiss bank will also be affected by goodwill and restructuring charges in the fourth quarter, Cryan said.

UBS confirmed it had made a third-quarter net profit of 296 million Swiss francs, helped by a gain on its own credit of 2.2 billion francs, plus a tax credit of 913 million francs.

The bank said it has also been losing client advisors at its key wealth management division, mostly in the United States, where a U.S. investigation into possible fraud is also hurting its reputation. It lost 182 advisors there, or 2 percent of the total.

Cryan told Reuters the bank was not anticipating further job cuts on top of the 7,500 layoffs it has announced during the crisis.

The bank was hit earlier than most of its rivals in the credit turmoil by its investment bank’s foray into the U.S. subprime market and has made nearly $49 billion of writedowns.

UBS also said Philip Lofts had been appointed group chief risk officer and member of the executive board with immediate effect. He was previously deputy group chief risk officer.

Credit Suisse CSGN.VX, Switzerland's other main bank, reported a 1.3 billion franc net loss in the third quarter after large trading losses, but its shares have shed only 36 percent so far this year and the bank has declined state help.

Writing by Emma Thomasson; Editing by Victoria Bryan, Erica Billingham and John Stonestreet