Swiss bank UBS' top managers reported a sea change in client confidence that should stem outflows of client cash by the end of this year.
In the most upbeat progress report to date of his recovery plan for the world's no. 2 wealth manager, Chief Executive Oswald Gruebel told investors that asset withdrawals would stay at a relatively moderate level in the near term.
Gruebel told Swiss television that a turnaround in client flows, the bank's biggest headache, could happen by the end of this year.
Chief Financial Officer John Cryan went further.
There is... a bit of a sea change in the perception of UBS, he said. 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.
The outlook came as the bank posted forecast-beating quarterly results which analysts said could boost customer confidence and reverse a flight by its own demoralized wealth advisors.
I think this (stemming of outflows) is plausible given the clear quarterly improvement and as UBS becomes more solidly profitable, said KWB analyst Matthew Clark.
Gruebel, hired in February 2009 to restore the bank to its former glory, had previously said the bleeding of rich client money would last for quarters.
Strong fixed-income revenues and higher wealth management margins helped Switzerland's No. 1 bank post a first-quarter net profit of 2.2 billion Swiss francs ($2 billion), beating a forecast of 2 billion francs.
UBS had pre-announced pre-tax profit and client withdrawals in April, pointing to a drop in outflows to 18 billion francs, one third the total in the previous quarter.
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 rallied after the pre-announced results in April, rose 1 percent at the open but gradually lost ground with the sector. UBS was down 5.00 percent in late trade, in line with a falling Europe's Stoxx 600 banking index <.SX7P>.
Gruebel said UBS was on track to meet its medium-term goals of annual pre-tax profit of 15 billion francs and said improvement in wealth and asset management would be gradual.
UBS had to ask for government cash to survive the crisis and was also embroiled in a bitter U.S. tax fraud probe, prompting rich clients to pull out billions of francs.
Persistent pressure by large neighbors like Germany and Italy on Switzerland's weakened bank secrecy laws is also straining UBS's massive offshore wealth management business.
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, 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.
Winning back trust takes time. One needs to be patient, said Sascha Kever, a fund manager at Banca del Sempione.
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 four times the previous quarter as UBS won 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.
(Editing by David Cowell and Andrew Callus)
($1=1.081 Swiss francs)