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February 2, 2009updated 04 Apr 2017 3:57pm

Signs UBS may have turned the corner

It attracted about CHF3.4 billion ($2.9 billion) of net new money in wealth management in January after seeing client investments flood out in 2008. Earnings at its key Wealth Management International & Switzerland business totalled CHF4.5 billion for 2008.

By PBI Editorial

Potentially heralding a recovery like the first swallow of spring, UBS saw its first client inflows for several quarters at the start of 2009.

It attracted about CHF3.4 billion ($2.9 billion) of net new money in wealth management in January after seeing client investments flood out in 2008.

Earnings at its key Wealth Management International & Switzerland business totalled CHF4.5 billion for 2008.

Although this is a decrease of 28 percent on the previous year, the core UBS private banking business remains inherently highly profitable.

Overall, the troubled bank reported a group net loss of CHF8.1 billion in the fourth quarter, taking the year’s loss to CHF19.7 billion – a record for a Swiss company.

Credit Suisse lost CHF6 billion in the last quarter, or CHF8.22 billion for the year after being similarly hurt by investment banking losses.

UBS, saying it expects to return to profit in 2009 after nearly $50 billion of toxic debt write-offs in the past year, also announced a new restructuring of its organisation.

This will see a refocus on its core Swiss businesses, its global wealth management operation and on the growth potential of its onshore business.

Two new business divisions are being created: Wealth Management & Swiss Bank under Franco Morra and Juerg Zeltner, and Wealth Management Americas led by Marten Hoekstra.

Further cutbacks

UBS will continue to cut its investment banking operations, with the aim of bringing down total staff to about 15,000 from around 17,000 currently.

Analysts have talked about UBS successfully mounting a “Fi-Fo” (first-in-first-out) strategy this year, being the first big bank to admit the scale of the credit crisis through write-downs, but exiting it relatively quickly, particularly after accepting help from the Swiss government and parking CHF60 billion in toxic obligations in a ring-fenced fund.

The key will be a restoration of its wealth management franchise, analysts said. UBS saw new money outflows of CHF58.2 billion in the fourth quarter compared to CHF49 billion the previous quarter.

Outflows took place in all regions, except the US, where it hired nearly 400 financial advisers in the quarter, but also slowed in the final two months of the year, before turning positive this January.

Still, the US continues to give UBS problems. CEO Marcel Roher insisted that the bank will keep its US wealth management division, even though it has held discussions with Wells Fargo and others about joint ventures or disposals.

Its US unit is largely based around a brokerage operation, PaineWebber, and UBS is known to be keen to get out of low-margin brokerage and into more higher-end advisory business.

In addition, UBS is facing a fine which could reach as much as CHF2 billion in settlement of a high-profile US investigation into possible tax fraud to help rich Americans hide undeclared money in offshore accounts.

Overall, UBS saw client outflows that left total managed assets down around a third at CHF2.4 trillion last year. Morgan Stanley analyst Huw van Steenis, in a note prepared before the earnings release, still thinks UBS will haemorrhage money this year, contending outflows could total CHF136 billion over 2009.

This, combined with falling margins, could lower wealth management profits by about a third this year, Van Steenis suggested.

At Credit Suisse (CS), net client inflows totalled CHF2 billion in the fourth-quarter, the slowest rate of the year, to take the year’s total to CHF51 billion.

In the final quarter of 2008, actual money inflows of CHF13.8 billion were offset by CHF11.8 billion of client deleveraging. Credit Suisse’s inflow target remains 6 percent per annum.

Matthew Clark, an analyst at Keefe, Bruyette & Woods, said the inflows in the quarter “were disappointingly weak but were driven by clients deleveraging rather than a damaged franchise.”

The gross margin came in well ahead of expectations at 1.17 percent versus an analysts’ consensus 1.11 percent.

CS’s earnings on a pretax basis from private banking and retail and corporate banking in Switzerland fell by 23 percent to CHF4.21 billion last year, and by 36 percent to CHF876 million in the final quarter. This was after being hurt by a CHF407 million provision for auction rate securities in the US.

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