Feb. 9 (Bloomberg) — UBS AG, the European bank with the biggest losses from the credit crisis, reported its first profit in more than a year, helped by a recovery at the investment bank and a lower charge tied to the company’s debt.
Fourth-quarter net income was 1.21 billion Swiss francs ($1.13 billion), compared with a loss of 9.56 billion francs a year earlier, the Zurich-based bank said in a statement today. Earnings beat the 416 million-franc estimate of 14 analysts surveyed by Bloomberg, helped by a 480 million-franc tax credit.
UBS may report its first annual profit since 2006 this year after spinning off $38.7 billion in toxic assets into a central bank fund, cutting 18,500 jobs and appointing 11 new managers to the executive board. Chief Executive Officer Oswald Gruebel, who has led UBS for almost a year, is relying on a recovery at the investment bank to help increase pretax earnings to 15 billion francs in three to five years.
“By now Gruebel has got things under control,” Joerg De Vries-Hippen, chief investment officer for European equities at Allianz Global Investors in Frankfurt, said before the earnings release. “There is light at the end of the tunnel.”
A return to profitability may help UBS stop withdrawals by wealthy clients, who removed a net 228.1 billion francs over the 21 months through December, Gruebel has said. Redemptions increased to 45.2 billion francs in the fourth quarter from 26.6 billion francs in the previous three months. Analysts had forecast 17.5 billion francs in outflows. The bank predicted that withdrawals will continue in the “immediate future.”
“We expect that our return to profitability will increase clients’ confidence in UBS and restore our reputation,” Gruebel said in the statement.
The wealth management and Swiss bank unit’s pretax profit more than doubled to 1.11 billion francs in the quarter as a charge to settle the U.S. cross-border case wasn’t repeated. Wealth management Americas had a profit of 178 million francs, compared with a loss of 444 million francs a year ago.
The investment bank posted pretax profit of 297 million francs, its first since the second quarter of 2007, as charges on UBS’s own debt fell to 24 million francs from 1.62 billion francs a year ago. Analysts had forecast charges of about 750 million francs. Earnings in asset management rose 20 percent to 284 million francs.
A quarterly profit “is an important staging post in rebuilding client confidence, and management delivering on its restructuring plan,” Matt Spick, a London-based analyst at Deutsche Bank AG, said in a note before the earnings release. “If UBS succeeds in rebuilding its investment bank, there could be considerable upside.”
U.S. Tax Case
UBS shares have fallen 12 percent so far this year in Zurich trading, matching the decline of the 52-company Bloomberg Europe Banks and Financial Services Index. Domestic rival Credit Suisse Group AG fell 15 percent.
The Swiss administrative court last month blocked the government from passing data to U.S. authorities on certain accounts, endangering an accord reached last year to settle a lawsuit against UBS related to alleged tax evasion by American clients.
Swiss Justice Minister Eveline Widmer-Schlumpf said on Jan. 27 that the government will work with the U.S. to save the deal. Also at risk is the deferred prosecution agreement that UBS signed in February 2009 to avoid criminal charges, she said. A criminal prosecution in the U.S. could lead to the bank’s insolvency and endanger the Swiss economy, the government said.
“We are confident that the Swiss and US governments will undertake cooperative discussions, as required by the settlement, to find alternative mechanisms for fulfilling the parties’ obligations, and we are fully supportive of these efforts,” Gruebel, 66, and UBS Chairman Kaspar Villiger, 69, said in a letter to shareholders.
UBS aims to attract about 5 percent of total invested assets as net new funds annually at the main wealth management unit in the medium term, and reach a pretax profit of 4.6 billion francs, the bank said in November.
The investment bank targets pretax earnings of 6 billion francs annually, as the debt trading unit, which was responsible for the majority of more than $57 billion in writedowns and losses from the credit crisis, recovers. UBS last month appointed Rajeev Misra and Dimitri Psyllidis, who previously worked for Deutsche Bank AG and Merrill Lynch & Co., respectively, to co-run the debt-trading unit.
The fixed-income division had its first positive revenue in the third quarter of 2009 after eight quarters of losses. UBS, which unlike Credit Suisse missed out on a credit rally in the first half of the year, brought in 200 new hires to revamp the business.