UBS reports Q4 profit, finishes 2009 on a loss

Keys to success: UBS earned a profit in the fourth quarter but finished 2009 on a loss AFP

In a significant turnaround from last year, Swiss bank UBS has posted a fourth-quarter net profit of SFr1.205 billion ($1.12 billion).

This content was published on February 9, 2010 - 11:39

The result, announced on Tuesday, beat expectations and represents a significant swing from the same period in 2008, when the bank lost SFr9.58 billion.

UBS is not in the clear and key indicators suggest chief executive Oswald Grübel will have more work on his hands to right the ship. UBS was battered last year by the credit crisis in the United States and by a bitter row over its role in enabling tax evasion in North America and Europe.

The bank also said it would pay around SFr2.9 billion in cash bonuses, up a third from last year. UBS said the variable compensation payment did not include deferred share awards and was up 34 percent from 2008, when it made a record loss.

It struggled to win back client money and investor confidence, particularly as a settlement in the US is now in question and Swiss banking secrecy is under attack.

The silver lining for UBS, which finished 2009 with a net loss of SFr2.74 billion, is that the result is a significant improvement on 2008, when it reported losses of more than SFr21 billion.

The bank nevertheless continued to watch its assets flow away. Net new money continued to fall in the fourth quarter, as UBS managers saw an outflow of SFr147.3 billion over the year, helped along by a SFr56.2 billion decline in the fourth quarter.

Pressure from an aggressive Italian tax amnesty in the final quarter of 2009 affected some SFr22.8 billion in assets and added to persistent brand damage that has hampered UBS' performance in the last two years and Grübel said the bleeding of client money would continue.

"We are confident that the measures we are taking to address the causes of client asset outflows will be effective, but in the immediate future we still expect to report outflows," Grübel and chairman Kaspar Villiger, a former Swiss minister brought in to help clinch the US tax deal, said in a letter to investors.

Tax cuts, job cuts

Operating income was SFr22.6 billion for 2009 compared with SFr796 million the previous year. UBS said it benefited from a tax credit worth SFr480 million and from lower costs. It slashed operating expenses by 12 per cent to just over SFr25 billion.

The Zurich- and Basel-based bank pointed to cost reduction and efficiency programmes it began at the beginning of the year, which it said had led to a reduction in its fixed costs.

UBS reduced its headcount by 16 per cent to 65,223 over the year, just above its 2010 target of 65,000.

But an acceleration in outflows from the bank’s key units means Grübel can’t rest yet. Some SFr33.2 billion disappeared from UBS’s wealth management and Swiss bank unit in the fourth quarter compared with SFr16.7 billion the previous quarter.

The bank also haemorrhaged client cash in the Americas, reporting net new money outflows of SFr12 billion in the fourth quarter compared with SFr9.9 in the third quarter. The Asia Pacific region showed positive net new money in the fourth quarter, UBS said.

"The money outflows will dominate the discussion today so the share will likely come under pressure," Kepler Capital Markets analyst Dirk Becker told Reuters.

"The margin in private banking has dropped further. They beat expectations but it looks like it was only because of non-operational items."

"The one big [thing] they achieved was to get back into profit in the fourth quarter, but it was expected. Obviously it would have been worse if they had not managed to do this." and agencies

Looking up?

UBS’s problems started to become apparent in July 2007, when chief executive Peter Wuffli stepped down following the collapse of the bank's hedge fund Dillon Read Capital Management.

In October 2007, UBS said it would cut 1,500 jobs in its investment banking arm. Chairman Marcel Ospel stepped down in April 2008.

In October last year, the Swiss National Bank (SNB) was forced to inject SFr6 billion ($5.29 billion) into UBS. A facility was also set up to allow the bank to bin up to $60 billion of toxic assets.

UBS has also been haunted by a US investigation that accused the bank of helping wealthy Americans illegally evade $200 billion in taxes. It was forced to pay $780 million in fines and hand over the confidential details of 4,450 clients.

The bank posted a loss of more than SFr20 billion in 2008. Its loss in 2009 was just over SFr2 billion, buoyed by a fourth quarter profit.

The bank remains plagued by its role in enabling US clients evade taxes. A Swiss court in January struck down a deal to hand over data to US authorities.

When the 2009 deal was struck, it took the heat off UBS.

The Swiss government has asked the US to renegotiate. It looks like the US is saying no.

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