UBS boss Oswald Gruebel predicted moderate asset withdrawals in the short term as the Swiss bank's forecast-beating quarterly results gradually start to boost client confidence and wealth advisors' morale.
Strong fixed-income revenues and higher wealth management margins helped UBS post a first-quarter net profit of 2.2 billion Swiss francs ($2 billion) on Tuesday.
In a sign that Gruebel's shakeout is bearing some fruit, the net came above a forecast for 2 billion even though UBS had pre-announced pre-tax profit and client outflows.
Gruebel said net client withdrawals, which dropped to 18 billion francs in wealth and asset management from 56 billion francs last quarter and remain UBS' biggest headache, are to stay at relatively moderate levels in the near term.
The CEO, hired in February 2009 to turn around the world's No.2 wealth manager, had previously said that the hefty bleeding of rich client money would last for quarters and had never quantified in such mild terms the entity of the expected loss.
Chief Financial Officer John Cryan said he hoped the turnaround could materialize before the end of the year.
There is also a bit of a seachange in the perception of UBS, he told a conference call. Now that we are back at reporting some profit, clients tend to have more confidence in us, and there are definitely signs that this is the case.
UBS, badly hit in the subprime crisis, outpaced for the second quarter in a row Credit Suisse , which posted net profit of 2 billion francs and disappointed investors for not matching U.S. peers' results.
UBS shares, which had rallied in April after the bank pre-announced some of its results, rose 1 percent at the open, but gradually lost ground. UBS was down 2.8 percent at 0937 GMT while Europe's Stoxx 600 banking index lost 2.6 percent <.SX7P>.
Gruebel said UBS was on track to meet its medium-term goals of generating annual pre-tax profit of 15 billion francs and added that he expected a gradual improvement in wealth management and asset management results.
Switzerland's largest bank had to ask for government cash to survive the crisis and was also embroiled in a bitter U.S. tax fraud investigation, prompting rich clients to pull out billions of francs at its key wealth management division.
Persistent pressure by large neighbors like Germany and Italy on Switzerland's already weakened bank secrecy laws is also straining UBS's massive offshore wealth management business.
We do see a substantial improvement. But these flows are not entirely within our control, Cryan said.
Cryan said UBS was winning client assets in high-growth Asia among the super-rich and in some important domestic European markets. But its offshore business was still struggling.
Wealth Management Americas, a unit which Gruebel hopes to revive thanks to the appointment last year of ex-Merril Lynch veteran Bob McCann, showed pre-tax profit retreating to near flat after an encouraging improvement in the fourth quarter.
The outlook on client flows is more upbeat than what they have been saying before. Previously they had talked about outflows continuing in the medium term, said analyst Dirk Hoffmann-Becking at Sanford C. Bernstein. But the continued decline in relationship managers does not reassure me.
Hundreds of client advisors have been leaving UBS in the past two years, taking clients with them. CFO Cryan said he hoped this trend could be reversed toward the end of 2010.
UBS had already indicated that the investment banking performance was driven by a strong rebound at its fixed income, currency and commodities. The credit business, which Cryan said had been virtually non-existent, was especially strong, he said.
The unit's revenues of 2.2 billion francs were more than four times what the division had made in the previous quarter as the bank began to win back market share.
The CFO said market conditions for the investment banking were continuing into the second quarter. He also said UBS had virtually no exposure to Greece and Portugal's sovereign debt and only a small exposure to that of Spain.
($1=1.081 Swiss francs)
(Editing by Mike Nesbit and David Cowell)