UBS loses clients while returning to black

UBS returned to profitability in the fourth quarter of 2009 but investors pushed down the company's share price on Tuesday by more than five percent on the Swiss exchange as questions lingered about its prospects.

Switzerland's largest bank posted a 1.2-billion-franc profit for the fourth quarter of 2009, more than double what most analysts had expected, largely on the basis of lower costs and a 480-million-franc American tax credit.

The positive result compared with a 9.5-billion-franc loss from the final three months of 2008 and followed four consecutive quarters of red ink.

The full year results showed a net loss of 2.7 billion francs for 2009, sharply lower than the record 21.3-billion-franc loss recorded in the previous year - the worst result in Swiss corporate history.

While UBS clawed its way back to the black, however, its management faced questions particularly over the massive outflows of money from its wealth management and Swiss bank business.

The bank blamed the Italian tax amnesty programme and the loss of American clients over the tax evasion investigation by the US government as major reasons for the outflows.

More than 33.2 billion francs exited the wealth management division, while Swiss retail customers withdrew deposits of 5.9 billion francs.

"We should not underestimate the reputational damage we engineered for ourselves," Oswald Grübel, CEO of UBS, told a press conference in Zurich.

It will take some time to repair the damage, Grübel said. "It needs patience, unfortunately."

The former Credit Suisse executive, hired to turn around UBS early last year, said profits were "essential" for winning back clients.

"In general, let me tell you, things are going to plan."

UBS is now a significantly smaller bank than it was in 2008 with the equivalent of 65,223 full-time employees at the end of 2009, down from 77,783 a year earlier.

It reduced the size of its balance sheet by more than a third, with assets totalling 1,341 billion francs as of December 31, down 33 percent from the previous year.

UBS's chief financial officer, British expat John Cryan, acknowledged the impact of Swiss banking secrecy issues and double taxation agreements on some outflows of investment with the bank.

And Cryan cautioned that future growth for the Wealth Management Americas "remains challenging".

But he said the bank's capital position "remains strong"  at 31.8 billion francs with a Tier 1 ratio of 15.4 percent (up from 15 percent at the end of September, 2009 and 11 percent a year earlier).

Cryan also said UBS could meet stiffer capital requirements proposed by the Basel Committee on Banking  Supervision.

"Clients now have every reason to have full confidence in UBS," he said.

Grübel minimized the impact of the ongoing US tax evasion case, which has encountered a hurdle from a Swiss court ruling.

The federal Administrative Tribunal has ruled that information about 4,450 Americans with UBS accounts suspecting of evading taxes cannot be transferred to US authorities as planned under a Swiss-US agreement.

Grübel said UBS had fulfilled its obligations and it was now up to the Swiss and US governments to negotiate a solution to the issue.

He similarly downplayed the impact of the sale of stolen data to Germany's government about Germans suspected of evading taxes through Swiss bank accounts.

The CEO said he unaware of UBS involvement in such cases, although he remarked that "if you induce people through high payments to steal data it changes the environment."

He added that UBS is less exposed than other Swiss banks to the possibility of an automatic exchange of bank client information between countries, currently proposed by some European nations.

"It affects us less than other Swiss banks because we have hundreds of billions in assets outside Switzerland," Grübel said.

In any event, he added, such policies are a long way from being implemented, with countries inside the Europen Union, such as Luxembourg and Austria opposed to such "automatic exchanges."