Pedestrians walk past the UBS AG bank headquarters in Zurich, Switzerland on July 12, 2009

UBS AG, Switzerland’s largest bank by assets, will see further withdrawals by wealthy clients after reporting a third consecutive quarterly loss, Chief Executive Officer Oswald Gruebel said.

“In international net new money we’re unlikely to see a quick reversal of the trend,” Gruebel said at a press conference Tuesday in Zurich. Outflows may persist after UBS lost client advisers and as regulatory pressures reduce growth prospects for wealth management, he said. The market as a whole “will see less growth in European offshore private banking for the foreseeable future.”

Gruebel, who cut 7,500 jobs and sold a Brazilian unit since joining in February, said that while markets have improved, a sustainable economic recovery “is not yet visible.” The bank reported a net loss of 1.4 billion Swiss francs ($1.32 billion) in the second quarter, wider than the 395 million-franc deficit in the year-earlier period, on costs for job cuts and charges tied to an improvement in its own debt.

UBS declined 74 centimes, or 4.6 percent, to 15.26 francs by 11:50 a.m. in Zurich, giving up most of the gains made since the US and Switzerland said last week they were near a settlement of a US lawsuit seeking data on 52,000 UBS clients.

‘Track record’

US Justice Department attorney Stuart Gibson said in a telephone conference call with District Judge Alan Gold on July 31 that the US and Switzerland “have reached an agreement in principle on the major issues” related to the lawsuit. Remaining points may be settled before August 7, he said.

A settlement “is a huge burden off the share price,” said Andy Lynch, who helps manage about $170 billion at Schroder Investment Management Ltd. in London. Investors next want to see stabilization in net new money flows, Lynch said. “The story is a long way from being finished.”

The US sued UBS on February 19, seeking names of 52,000 clients, a day after the bank agreed to pay $780 million to defer prosecution for helping wealthy Americans evade taxes. UBS agreed then to give the US data on more than 250 accounts.

The IRS is seeking the additional names because it suspects American account holders of evading taxes. Switzerland called the case a threat to its sovereignty and said it would force UBS to violate criminal laws protecting bank secrecy. The parties declined to provide any additional information on the agreement.

Client trust

“We look forward to a definitive resolution of the US cross-border matter,” Gruebel and Chairman Kaspar Villiger said in a letter to shareholders. “This is a positive development in a matter that has adversely affected our efforts to regain the trust of our clients and restore momentum to our businesses.”

The bank didn’t make any additional provisions for litigation costs related to the US lawsuit in the second quarter, Chief Financial Officer John Cryan told journalists on a conference call.

UBS said the second quarter earnings included a 1.2 billion-franc charge related to the company’s own debt, 582 million francs in reorganization costs and a goodwill impairment of 492 million francs related to the sale of Brazil’s UBS Pactual unit.

The bank’s securities unit reported a pretax loss of 1.85 billion francs, compared with a loss of 5.24 billion francs a year ago. Earnings at the wealth management and Swiss bank halved to 932 million francs, while wealth management Americas had a pretax loss of 221 million francs, compared with a 748 million-franc deficit a year ago. Asset management profit dropped 77 percent to 82 million francs.

Third quarter

Excluding charges, operating earnings in the quarter showed “very encouraging signs,” Cryan said. “The general environment, which obviously in the second quarter of this year was more positive than for some quarters, seems to have continued into the third quarter.”

Before the second quarter, UBS had amassed $53.1 billion in writedowns and losses from the financial crisis and had to raise more than $38 billion to replenish capital from investors including the Swiss government, data compiled by Bloomberg show. The bank said in June it expected a loss for the second quarter.

Zurich-based Credit Suisse Group AG, which declined government aid, posted on July 23 its second consecutive quarterly profit, beating analysts’ estimates as revenue from trading doubled. BNP Paribas, France’s largest bank, reported Tuesday a 6.6 percent increase in second-quarter profit.

Management changes

UBS’s wealth-management units suffered 134 billion francs of net client withdrawals from the second quarter of last year through the first three months of 2009.

Gruebel, 65, told employees in a July 14 memo that they “must do everything” to stop money-management outflows.

UBS still plans to combine wealth management and Swiss banking with a securities business and asset management, Gruebel said at the time. The bank should focus on rebuilding and protecting its reputation, integrating its businesses more closely and increasing the quality and efficiency of servicing clients, he said.

Gruebel has shaken up top management since taking over from Marcel Rohner, 44, in February. UBS appointed Chi-Won Yoon, 50, as chairman and CEO for Asia-Pacific in June, replacing Rory Tapner, 49. Gruebel in April hired former Credit Suisse colleague Ulrich Koerner, 46, as chief operating officer and named Alexander Wilmot-Sitwell, 48, and Carsten Kengeter, 42, co-heads of the investment bank, replacing Jerker Johansson, 53.

A recovery at UBS “will take time,” said Guy de Blonay, who helps manage about $70 billion at Henderson Global Investors Ltd. in London. “Gruebel has a good track record, and he is going to do everything that he can to position the company to match rival performance.”

Source: Bloomberg