August 5, 2009
UBS AG, Switzerland's largest bank by assets, will see further withdrawals by wealthy clients after reporting a third consecutive quarterly loss, Chief Executive Officer Oswald Gruebel said.
UBS fell as much as 6.6 percent in Zurich trading as Gruebel said a halt in redemptions at the wealth management unit will probably lag behind a financial turnaround at the bank. Customers withdrew a net 22.3 billion Swiss francs ($21 billion) in the second quarter, a fifth straight period of redemptions.
"In international net new money we're unlikely to see a quick reversal of the trend," Gruebel said at a press conference yesterday in Zurich. Outflows may persist after UBS lost client advisers and as regulatory pressures reduce growth prospects for wealth management, he said. The market as a whole "will see less growth in European offshore private banking for the foreseeable future."
Gruebel, who cut 7,500 jobs and sold a Brazilian unit since joining in February, said that while markets have improved, a sustainable economic recovery "is not yet visible". The bank reported a net loss of 1.4 billion Swiss francs in the second quarter, wider than the 395 million-franc deficit a year earlier, on costs for job cuts and charges tied to an improvement in its own debt.
UBS declined 96 centimes, or 6 percent, to 15.04 francs by 12:58 pm in Zurich, giving up the gains made since the US and Switzerland said last week they were near a settlement of a US lawsuit seeking data on 52,000 UBS clients.
'Huge burden'
US Justice Department attorney Stuart Gibson said in a telephone conference call with District Judge Alan Gold on July 31 that the US and Switzerland "have reached an agreement in principle on the major issues" related to the lawsuit. Remaining points may be settled before Aug 7, he said.
A settlement "is a huge burden off the share price", said Andy Lynch, who helps manage about $170 billion at Schroder Investment Management Ltd in London. Investors next want to see stabilization in net new money flows, Lynch said. "The story is a long way from being finished."
The US sued UBS on Feb 19, seeking names of 52,000 clients, a day after the bank agreed to pay $780 million to defer prosecution for helping wealthy Americans evade taxes. UBS agreed then to give the US data on more than 250 accounts.
The IRS is seeking the additional names because it suspects American account holders of evading taxes. Switzerland called the case a threat to its sovereignty and said it would force UBS to violate criminal laws protecting bank secrecy. The parties declined to provide any additional information on the agreement.
Client trust
"We look forward to a definitive resolution of the US cross-border matter," Gruebel, 65, and Chairman Kaspar Villiger, 68, said in a letter to shareholders. "This is a positive development in a matter that has adversely affected our efforts to regain the trust of our clients and restore momentum to our businesses."
The bank didn't make any additional provisions for litigation costs related to the US lawsuit in the second quarter, Chief Financial Officer John Cryan told journalists on a conference call.
UBS said the second-quarter earnings included a 1.2 billion-franc charge related to the company's own debt, 582 million francs in reorganization costs and a goodwill impairment of 492 million francs from the sale of Brazil's UBS Pactual unit.
Third quarter
The bank's securities unit reported a pretax loss of 1.85 billion francs, compared with a loss of 5.24 billion francs a year ago. Earnings at the wealth management and Swiss bank halved to 932 million francs, while wealth management Americas had a pretax loss of 221 million francs, compared with a 748 million-franc deficit a year ago. Asset management profit dropped 77 percent to 82 million francs.
Excluding charges, operating earnings in the quarter showed "very encouraging signs", Cryan said.
"The general environment, which obviously in the second quarter of this year was more positive than for some quarters, seems to have continued into the third quarter."
Before the second quarter, UBS had amassed $53.1 billion in writedowns and losses from the financial crisis and had to raise more than $38 billion to replenish capital from investors including the Swiss government, data compiled by Bloomberg show. The bank said in June it expected a loss for the second quarter.