The latest UBS results revealed the enormity of the task the bank faces to restore credibility as wealthy clients continued to take their assets elsewhere.This content was published on November 3, 2009 - 21:45
Despite downsizing, reducing exposure to risky assets and completely revamping its leadership structure, UBS appears unable to stem the outflow from its flagship wealth management business.
The beleaguered bank saw rich individuals, families and institutional clients withdraw SFr36.6 billion ($35.5 billion) in the last three months.
These startling figures overshadowed the group's overall financial performance in the third quarter. Although UBS reported a net loss of SFr564 million ($542 million), this was affected by significant one-off charges and showed a marked improvement on the SFr1.4 billion second quarter loss.
Bank Sarasin analyst Daniel Bischof told swissinfo.ch that this demonstrated that UBS was moving slowly in the right direction. "These numbers show that they are on the right track," he said.
"But the negative surprise of the negative [wealth management] outflows has outweighed the improving operational environment. The bank needs to first return to profit and then the outflows will decrease and its reputation can be rebuilt"
Internal morale suffering
UBS chief financial officer John Cryan attributed some of these outflows to ending offshore business with United States clients. But he also pointed to the reputational damage the bank has suffered not just with clients, but also among its own ranks, with some client advisors jumping ship and taking wealthy customers with them.
"Until we get stability back in our ranks and we return to profit, it would be difficult for us to categorically state that we are confident that we can turn around the situation," he said.
Bank Vontobel analyst Teresa Nielsen also picked up on the negative effects of the bank's image. "The brand has been more hit by reputation issues than expected – especially in the Americas," she noted.
The bank's Wealth Management Americas division actually turned in a SFr110 million profit, but this was largely down to reduced staff headcount bringing operational costs down 20 per cent.
The unit leaked SFr9.9 billion in client outflows in the three months up to the end of September, significantly worse than the preceding quarter.
UBS's reputation has taken a double hit in the United States in the shape of losses from the subprime mortgage meltdown and a recent tax evasion investigation. While the bank was glad to put the case behind it in August, the settlement came at the high price of revealing the identities of 4,450 clients to the US authorities.
The person charged with fixing the problem is respected veteran banker Robert McCann, who was installed as chief executive of the key division last month. McCann is a former heavyweight at US giant Merrill Lynch and had to take legal action to prise himself away from his post at Bank of America to join UBS.
McCann's appointment has been viewed with widespread approval in the industry as a person capable of turning around the poorly performing unit.
However Helvea analyst Peter Thorne warned that McCann would have his work cut out. "The appointment of a new man at the top won't change the fact that the US wealth management unit remains strategically challenged," he told Reuters.
UBS will reveal on November 17 how it plans to develop its strategy in the coming months to turn the business around and restore its reputation.
Matthew Allen in Zurich, swissinfo.ch
UBS Q3 results
UBS posted a net loss of SFr564 million ($542 million) in the third quarter, an improvement from the SFr1.4 billion loss in Q2.
One-off accounting charges for Q3 amounted to SFr2.15 billion. These were charges accrued on its own debts, losses from selling UBS Pactual and losses sustained paying back the Swiss government for a previous bail-out.
Operating income decreased to SFr5.766 billion from SFr5.770 billion while operating expenses also shrank from just over SFr7 billion to SFr6.36 billion.
Net outflows from the Wealth Management and Swiss Bank division were SFr16.7 billion (SFr16.5 billion in Q2).
Wealth Management Americas saw outflows of SFr9.9 billion (SFr5.8 billion) while Global Asset Management witnessed withdrawals amounting to SFr10 billion (SFr17 billion).
The improving trading conditions saw total invested assets rise to SFr2.26 trillion from SFr2.5 trillion at the end of June.
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