UBS clients withdrew money at twice the expected rate in the fourth quarter, eclipsing the bank's first net profit since Oswald Gruebel took the helm a year ago and raising concern he will struggle to steady the ship.

Gruebel, the banking veteran who had nursed rival Credit Suisse back to health, delivered a 1.2 billion Swiss franc ($1.1 billion) profit a year after he was hired to rebuild UBS . He said further positive quarters were needed for the scandal-tainted Swiss bank to restore client trust.

Clients withdrew a hefty 56 billion francs, up from 37 billion in the third quarter and confounding expectations that outflows would slow after UBS settled a bitter U.S. probe into help it offered rich Americans to dodge taxes.

UBS, left damaged by the tax row and the credit crisis, has struggled to attract clients and investors, with doubts about the U.S. settlement and concerted attacks on Swiss banking secrecy further complicating Gruebel's task.

(He) is certainly the right man for the job, but it will be a long journey, said Manfred Hofer, head of equity research at LGT Capital Management.

Cost cuts and resilience in the investment bank's advisory and underwriting business did not compensate for the torrent of client money outflows, said Helvea analyst Peter Thorne.

These factors are overshadowed by the awful outflows from the wealth management unit and the prospect of more to come, he said.

Pressure from an aggressive Italian tax amnesty in the final quarter of 2009 added to persistent brand damage that has hampered UBS's performance in the last two years.

In the immediate future we still expect to report outflows, Gruebel and Chairman Kaspar Villiger -- a former Swiss minister hired to help clinch the U.S. tax deal -- said.

Shares in UBS traded 1.4 percent lower at 1322 GMT (8:22 a.m. EST), lagging a 2 percent rise in the DJ Stoxx European banks index <.SX7P> Shares in Credit Suisse and Julius Baer , which have gained client money from UBS, both rose more than 3 percent.

BACK TO PROFIT

UBS' fourth quarter net profit came in at 1.205 billion Swiss francs, its first positive quarter after four negative ones and helped by one-off gains. The figure beat expectations of 326 million francs in a Reuters poll.

While returning to profit is a milestone, the higher-than-expected outflows are worrying as there seems no end in sight for the negative margin trend in Wealth Management and Swiss Banking, said Kepler analyst Mathias Bueeler, who reiterated his Reduce rating.

UBS' investment bank, which had shown improvements in the previous two quarters, turned positive at pretax level with a gain of nearly 300 million francs after the bank cut its balance sheet by a further 11 percent and slashed personnel costs.

Gruebel said he expected the investment bank to improve in 2010, but this would depend on market swings. U.S. plans to curb risk-taking by banks should have no or little effect, he added.

U.S. TAX COMPLICATIONS

Complications on the U.S. tax probe after a Swiss court ruling in January and a smaller roster of client advisors have set a potentially tough first challenge for Merrill Lynch veteran Robert McCann, who was hired by UBS in October to revitalize the scarred U.S. wealth franchise.

McCann has yet to unveil his strategy, and many analysts are betting Gruebel may end up selling the unit.

While the largest fourth quarter withdrawals were seen at UBS' key Wealth Management and Swiss Bank division, the Americas wealth division also came under pressure, suffering net outflows of 12 billion francs, more than twice analysts' expectations.

CFO John Cryan said the positive quarterly figures should encourage clients to stop taking money out of the bank, while Gruebel was confident Swiss authorities would find alternative mechanisms to ensure the U.S. tax deal was honored.

UBS is facing a more competitive environment in the United States as the crisis led to the emergence of brokerage giants Morgan Stanley Smith Barney , Bank of America-Merrill Lynch and Wells Fargo .

At home, Credit Suisse has won market share both in wealth management and investment banking and is predicted to post a 1.3 billion franc quarterly net profit.

(Additional reporting by Jason Rhodes and Katie Reid; editing by John Stonestreet)

($1=1.074 Swiss Franc)

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