UBS Swings to Loss on Charges
UBS AG on Tuesday posted a third-quarter net loss, hit by three big charges, and cautioned that heavy withdrawals from wealthy clients will persist in coming months following a dismal performance from its private bank.
The Swiss bank, among the hardest-hit banks by the financial crisis, swung to net loss of 564 million Swiss francs ($552.9 million), compared with a net profit of 283 million francs a year earlier.
Along with credit losses of 1.44 billion francs, the latest results included 409 million francs in charges related to the sale of its Brazilian investment bank Banco Pactual, as well as 305 million francs related to a convertible note bought by the Swiss government.
Chief Executive Oswald Gruebel was cautiously optimistic about the bank's prospects next year. "Having stabilized the bank's financial condition and resized the business, I expect to see further progress in future quarters, particularly in 2010," he said. "However, this progress will depend on market and other factors."
Analysts were taken aback by the amount of damage the bank's $50 billion in write-downs on illiquid securities at UBS's investment bank had caused its key private banking arm, and will continue to incur.
Mr. Gruebel said that while a recent landmark settlement with U.S. tax authorities is having a "profound" impact on the bank's efforts to restore confidence and on staff morale, outflows still won't snap back, citing its exit of U.S. offshore activities, as well as UBS still being unprofitable, which has led clients to be concerned about stowing their money with the bank.
"We expect the weak performance in [the private bank] will particularly concern the market as it has often been viewed as a cash cow that will support UBS no matter what the performance is in other divisions," said Bernstein Research analyst Dirk Hoffmann-Becking, who rates UBS at "underperform."
The wider-than-expected loss and poor private-banking performance led to a sell-off in UBS shares. In recent trading, the stock was down 3.6% at 16.72 francs on a broadly lower Zurich market.
UBS said revenue will also be hampered by low interest rates, which will hit net interest income. The bank also expects another, potentially "sizable" credit charge in the fourth quarter, as a result of further tightening of its credit spreads.
The credit charges relate to accounting rules used by most lenders, under the terms of which banks can book noncash gains when the value of their debt falls, as it theoretically needs less money to buy back its own debt. When markets recover, these gains are reversed into losses.
Operating income rose 4% to 5.77 billion francs from 5.54 billion francs, as year-earlier trading losses turned into modest gains. This was driven by an improvement at the bank's fixed-income business, which for the first time in nine quarters made a positive contribution.
"We are definitely on the road to recovery [at the investment bank], but it will be a wobbly road," Finance Chief John Cryan said.
Operating expenses increased, driven by higher personnel expenses, which partly reflect a change in compensation policy, under which a higher proportion of bonuses will be paid in cash and therefore needs to be booked in the continuing business years.
UBS continued to lose client assets during the quarter. Net new money outflows totaled 36.7 billion francs. The private bank, U.S. brokerage and asset-management unit all recorded outflows.
Anita Greil contributed to this article.
Write to Katharina Bart at katharina.bart@dowjones.com
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