UBS reports Q3 net loss of $542 million

By ERNST E. ABEGG

posted: 23 DAYS 12 HOURS AGO

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ZURICH -Swiss bank UBS AG reported a third-quarter net loss of 564 million Swiss francs ($542 million) on Tuesday, blaming accounting charges of 2.15 billion francs for keeping it in the red.

The disappointing results — along with a warning that wealthy clients are still withdrawing more money from the bank than they are putting in — sent UBS shares down 5.8 percent to close at 16.35 francs ($15.86) on the Zurich exchange.

The Zurich-based bank had posted a net profit of 283 million francs during the same period last year.

Discounting the one-time charges, UBS would have made a third-quarter pretax profit of 1.56 billion francs, it said. Operating income rose 4 percent to 5.77 billion francs compared with the same period last year.

Analysts had predicted a third consecutive quarterly loss this year but differed widely in how to assess the expected writedowns, most of which resulted from tighter credit conditions.

UBS also took a hit from currency exchange in the sale of its Brazilian unit UBS Pactual, and from the conversion of mandatory convertible notes issued to the Swiss government as part of a bailout last year when the bank suffered a record 21-billion-franc annual loss.

The bank has reduced its risky investments and shed thousands of jobs in an attempt to return to profit over the past year. Staff numbers fell by almost 2,800 during the quarter and now stand at just over 69,000.

Chief Executive Oswald Gruebel tried to strike an upbeat note, stating that "business is steadily returning to normal."

"Management actions are delivering visible results, and we are continuing to emphasize risk reduction and capital strength," said Gruebel, who was brought in to turn the bank around in March.

But UBS Chief Financial Officer John Cryan acknowledged that "reputational issues still weigh on us a bit, and that particularly weighs on the morale of our client advisers."

Some 100 client advisers are expected to leave the bank in the fourth quarter, many of them taking their wealthy clients with them when they move.

Net money outflows reached 36.6 billion francs during the third quarter, a trend that is likely to continue during the last three months of the year, UBS said.

"When the headlines are still negative that does impact our client base," Cryan, said in a conference call.

UBS's image problems stem partly from the continuing losses, but also from the negative publicity surrounding its high-profile dispute with U.S. tax authorities, said Cryan.

In a decision that shook the foundations of Swiss banking secrecy, UBS agreed in September to hand over the names of 4,450 wealthy American customers the U.S. government suspects of large-scale tax evasion.

A return to net profit would be the strongest factor in winning back clients, said Cryan.

Cubillas Ding, senior analyst at research firm Celent, said it would "take a more than persuasive convincing for wealthy clients to fully perceive the firm as a safe haven again."

"Reputation is a fragile dimension, painstaking to build but easily broken," said Ding.

The bank said it expects further writedowns from tightening credit spread in the fourth quarter, and that recovery in 2010 would depend on market conditions.

The bank's Tier 1 capital ratio — a measure of financial strength — reached 15 percent by the end of September, up from 13.2 percent at the end of the second quarter. The higher the ratio, the more stable a bank is generally considered to be.

Tuesday's results again put UBS behind cross-town rival Credit Suisse Group, which last month posted a net profit of 2.4 billion francs for the third quarter.

"While other banks are taking advantage of the good mood on the financial markets to strengthen their position, UBS is still shoveling away the detritus of the crisis," said analysts at private bank Wegelin.

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Associated Press writer Frank Jordans in Geneva contributed to this report.

2009-11-03 13:00:38