UBS Posts Higher Profit, Inflows From Wealthy Clients

UBS AG, Switzerland’s biggest bank, posted a 7 percent increase in fourth-quarter profit and attracted new money from wealthy clients for a second straight period. 

Net income rose to 1.29 billion Swiss francs ($1.35 billion) from 1.21 billion francs a year earlier, the Zurich- based bank said in a statement today. Clients added a net 6.1 billion francs at its wealth management units.

Chief Executive Officer Oswald Gruebel, who hired new managers and more than 1,700 investment bankers since coming out of retirement in 2009 to rebuild UBS and stem customer defections, said he’s optimistic that inflows will “strengthen noticeably” this year. UBS rose as much as 2.5 percent in Swiss trading. 

“The outlook is that things will get better over the course of 2011 and we buy that,” said Simon Maughan, co-head of European equities at London-based MF Global Ltd. with a “buy” rating on the stock.

UBS was 32 centimes, or 1.8 percent, higher at 17.82 francs by 9:28 a.m. The stock has gained 16 percent in Swiss trading this year, compared with a 18 percent jump at Credit Suisse Group AG, the second-largest Swiss bank, and a 12 percent advance in the 48-company Bloomberg Europe Banks and Financial Services Index. 

Risk-Taking

Pretax profit at the investment bank slumped 75 percent to 75 million francs from a year earlier on higher costs and a 509 million-franc charge related to the bank’s own debt. UBS needs to increase risk-taking at the securities unit from levels that were “half the risk of some of our competitors over the last 12 to 18 months” to generate more profits, Gruebel, 67, told investors at a London presentation in November.

UBS said today it expects “some improvement” in the unit’s trading results in the current quarter compared with the previous two quarters.

Earnings at the wealth management and Swiss bank division fell 21 percent to 875 million francs and dropped 52 percent to 135 million francs in asset management, while wealth management Americas reported a pretax loss of 33 million francs. 

Bonus Pool Cut

Clients in the Americas and in UBS’s retail unit added a net 3.4 billion francs and 2.7 billion francs in the quarter, respectively, while the main wealth management division saw inflows of 1.1 billion francs in Switzerland canceled out by the same amount of outflows internationally.

“We are optimistic that overall positive net new money inflows will continue in the first quarter,” Gruebel and Chairman Kaspar Villiger said in a letter to shareholders. “For the full year, we believe that net new money will strengthen noticeably.” 

UBS said it reduced the total 2010 bonus pool by 10 percent to 4.3 billion francs. Each employee with total compensation above 250,000 francs will receive at least 60 percent of the bonus in shares deferred over three years, while members of the executive board will have more than 75 percent of their variable compensation deferred, it said. 

Profitability

UBS saw net withdrawals from its wealth management units of 251.6 billion francs in the 27 months through June as losses from the credit crisis, a government bailout and a U.S. tax investigation that forced UBS to hand over names of rich clients unnerved employees and customers. UBS and Credit Suisse are now facing an erosion of profitability in wealth management from an assault on banking secrecy and the need to invest in new markets. 

UBS is the world’s second-largest wealth manager after Charlotte, North Carolina-based Bank of America Corp. took the top spot by purchasing Merrill Lynch & Co. during the financial crisis. Credit Suisse ranks fifth after New York-based Morgan Stanley and Wells Fargo & Co. of San Francisco, according to a survey by London-based Scorpio Partnership, which provides research and analysis on the industry. Wealth managers typically cater to clients with at least $1 million to invest. 

Wealth management and retail banking contributed 50 percent of pretax profit in the first nine months of the year at UBS and 44 percent at Credit Suisse, company reports show. The businesses will become even more important as stricter capital requirements in the wake of the financial crisis make investment banking more costly. 

U.S. Tax Probe

The U.S. Justice Department in October dismissed the case against UBS after the expiration of an 18-month deferred prosecution the bank signed to avoid criminal charges. The U.S. Internal Revenue Service dropped a demand for the identities of Americans who hold secret offshore accounts at UBS in November, after the bank turned over data on more than 4,000 clients. 

Switzerland is negotiating dozens of tax treaties and is in talks with Germany and the U.K. on withholding taxes on undeclared money held in Swiss banks. 

UBS, which managed 108 billion francs in Switzerland for customers from the U.K., Germany, France, Italy and Austria as of September 2009, said last year these clients withdrew more than 20 billion francs in the 12 months through September. As much as 40 billion francs are still at risk from further tax regulations, the bank told investors in November.