ZURICH — UBS AG, one of the hardest hit banks in the global financial crisis, on Tuesday confirmed that it made a net loss for the first quarter, illustrating that it continues to struggle with writedowns even as rivals show signs of business picking up.
The Zurich-based bank said its net loss for the three months was 2 billion Swiss francs ($1.77 billion), compared with an CHF11.62 billion net loss a year earlier, and cautioned that it may have to hike credit provisioning in coming quarters.
The bank said that year-ago earnings were revised lower to correct accounting errors in 2008 and because of a reorganization of its private bank. UBS had chosen to "sweep its accounts clean" and voluntarily stop rolling forward costs such as those linked to a program to buy auction-rate securities back from U.S. clients at par value, financial head John Cryan told a conference call.
Several weeks ago, when it disclosed cuts of over 11% of its workforce, UBS had told investors to expect a loss of nearly CHF2 billion for the quarter. The bank reiterated a cost-savings target of up to CHF4 billion next year compared with 2008, partly by slashing jobs.
In its outlook, UBS urged caution even as it noted market sentiment - on which its business relies heavily - improving. Credit markets, however, only rebounded partly, and trading in complex instruments remains illiquid, the bank said.
"The markets continue to be unsettled, and we remain cautious on the immediate outlook for UBS," the bank said in a statement.
UBS' Tier 1 ratio — a measure of capital strength and a worry for analysts in recent quarters — was 10.5%, which would have been higher at 11% had the recent sale of Banco Pactual been factored in, the bank said. Analysts expressed surprise at the healthier-than-expected ratio, which one said makes another capital increase less likely.
UBS shares surged after the news. At 1137 GMT, they were up 3.4% or CHF0.53 at CHF16.24, compared with a 4.1% rise in the Stoxx Europe 600 bank index.
Still, the earnings are in stark contrast to rivals such as JP Morgan & Chase Co., Credit Suisse Group and Deutsche Bank AG, which topped expectations in recent weeks. UBS, in the process of exiting some trading areas as it clamps down on risk-taking, acknowledged the discrepancy.
"We're slightly different from our competitors in that we are not big traders of credit, so we didn't benefit from some of the revenues available from credit flow trading," Cryan told the conference call.
The earnings show that UBS' investment bank, which reported a CHF3.16 billion loss before taxes, is still burdened by major writedowns from instruments bought from U.S. monoline insurers as well as leverage loans held.
Overall UBS revenue swung into positive territory at CHF4.97 billion, from a year-ago loss, though still hit by CHF630 million in trading losses, and credit loss provisions of CHF1.14 billion.
"Revenues remain the key uncertainty and nothing in these numbers (reassures) on that," Execution analyst Fiona Swaffield said. She rates UBS at sell with a fair value of CHF15.
UBS also appears to still be struggling to contain the ugly spillover from the investment bank to its private bank, which caters to the financial affairs of wealthy individuals.
The private banking unit, which serves well-heeled private clients and retail customers in Switzerland, suffered withdrawals of CHF23.4 billion, after CHF123 billion left last year.
Initially healthy in the first weeks of 2009, inflows turned to outflows after UBS settled a U.S. tax probe and handed over confidential client data, CFO Cryan said. Though short on specifics, he indicated that outflows have slowed since the second quarter began.
UBS is considering the disposal of smaller units to further bolster its capital, which got a lift after the bank sold Pactual, Cryan said, though he didn't elaborate. UBS would prefer to lift capital in this way, over tapping shareholders, he said. Speculation among analysts and market watchers has been rife that UBS might sell its U.S. brokerage, formerly known as PaineWebber, which would represent another major disposal for UBS.