UBS AG, the Swiss bank that needed a government rescue in 2008, expects to attract more funds from wealthy clients this year after recording a second straight quarterly increase.
"We are optimistic that overall positive net new money inflows will continue in the first quarter," Chief Executive Officer Oswald Gruebel and Chairman Kaspar Villiger said in a letter to shareholders Tuesday. "For the full year, we believe that net new money will strengthen noticeably."
UBS added a net 6.1 billion Swiss francs ($6.4 billion) at its wealth management units in the last three months of 2010. Switzerland's largest bank saw net withdrawals from its wealth management units of 251.6 billion francs ($263.1 billion) in the 27 months through June after losses from the credit crisis, a state bailout and a U.S. tax probe that forced UBS to hand over names of rich clients.
Gruebel, 67, has hired new managers and more than 1,700 investment bankers since joining in 2009 to rebuild UBS and stem customer defections. He said further improvements in profit are needed and he will stay at least through this year.
"The outlook is that things will get better over the course of 2011, and we buy that," said Simon Maughan, co-head of European equities at London-based MF Global Ltd., who has a "buy" rating on UBS stock.
Pretax profit at the wealth management and Swiss bank division fell 21%, to 875 million francs ($915 million), in the fourth quarter, and dropped 52%, to 135 million francs ($141 million), in asset management.
Wealth management Americas reported a pretax loss of 33 million francs ($35 million).
Clients in the Americas and in UBS' retail unit added a net 3.4 billion francs ($3.6 billion) and 2.7 billion francs ($2.8 billion) in the quarter, respectively, while the main wealth management division saw inflows of 1.1 billion francs ($1.2 billion) in Switzerland canceled out by the same amount of outflows internationally.
UBS is the world's second-largest wealth manager after Bank of America Corp. Morgan Stanley, Wells Fargo & Co. and Credit Suisse round out the top five, according to a survey by London-based Scorpio Partnership, which provides research and analysis on the industry. Wealth managers typically cater to clients with at least $1 million to invest.
UBS and Credit Suisse are facing an erosion of profitability in wealth management from an assault on Swiss banking secrecy and the need to invest in new markets. Wealth management and retail banking contributed 54% of pretax profit at UBS last year, and may become even more important as stricter capital rules make investment banking more costly.
Pretax profit at UBS' investment bank slumped 75% year over year, to 75 million francs ($78 million), on higher costs and a 509-million-franc ($532 million) charge related to the bank's own debt.
Overall, UBS posted net income of 1.29 billion francs ($1.35 billion) in the fourth quarter, a 7% increase from a year earlier.
Gruebel said that measures taken to revamp the wealth management business should make it possible to reach the target of making more than $1 in revenue on every $100 of assets under management in 2011. The so-called gross margin was at 92 basis points in the fourth quarter.
The U.S. Justice Department in October dismissed its case against UBS after the expiration of an 18-month deferred prosecution the bank signed to avoid criminal charges.
The U.S. Internal Revenue Service dropped a demand for the identities of Americans who hold secret offshore accounts at UBS in November, after the bank turned over data on more than 4,000 clients.
Switzerland is negotiating dozens of tax treaties and is in talks with Germany and the U.K. on withholding taxes on money held in Swiss banks.
UBS, which managed 108 billion francs ($113 billion) in Switzerland for customers from the U.K., Germany, France, Italy and Austria as of September 2009, said last year that these clients withdrew more than 20 billion francs in the 12 months through September. As much as 40 billion francs ($42 billion) was still at risk from further tax regulations, the bank told investors in November.
