ZURICH - UBS said earnings would remain at risk due to its exposure to illiquid and choppy markets, as it revised up its 2008 net loss, the biggest in Swiss corporate history, to include a large U.S. tax fine and extra writedowns.

UBS also said that net new money remained positive in its wealth management Americas division, but this was being partially offset by outflows in wealth management elsewhere and in its Swiss bank.

UBS, which is struggling to rebuild its reputation after being hit hard in the credit crisis, said in its full-year report that its 2008 net loss had risen to 20.9 billion Swiss francs ($18.06 billion) from the previously reported 19.7 billion francs, and predicted tough times ahead.

Even after substantial risk reduction, our balance sheet remains exposed to illiquid and volatile markets and our earnings will therefore remain at risk for some time to come, UBS said in a letter to shareholders in its annual report.

Our near-term outlook remains extremely cautious, UBS added in its first forward-looking statement with input from new Chief Executive Oswald Gruebel, a former Credit Suisse chairman appointed late last month to turn around the firm.

UBS had said on February 10, the day it announced its 2008 results, that net new money had turned positive in wealth and asset management in January, giving a ray of hope to investors that it was managing to stem a flood of client withdrawals.

In contrast with its February statement, UBS said on Wednesday its global asset management division had suffered further outflows.

There seems to be further outflows. The wealth management inflows are skewed toward the U.S., which is not as profitable as other areas of wealth management, said Andreas Venditti, an analyst at ZKB.

The big question is: when will the wealth management and Swiss bank division turn positive?

UBS boosted its pool of U.S. client advisors in the final quarter of 2008, a move that analysts say helped boost inflows in U.S. wealth management as the new advisors brought in their old clients.

Shares in UBS opened 3.8 percent down after the revised loss and cautious outlook, but then turned positive and were trading 3.3 percent up at 10.11 Swiss francs at 1026 GMT (6:26 a.m. EDT) while the Dow Jones index of European bank stocks was up 3.8 percent .SX7P.

ACCOUNT REVISION

The world's largest wealth manager agreed on February 18 to a $780 million fine to avert U.S. criminal charges that Swiss regulators say could have threatened the bank's survival, and said at the time it would book it onto its 2008 accounts.

The other additional charges relate to the Swiss National Bank's (SNB) valuation of around $7.8 billion of securities not yet transferred to an SNB stability fund, dedicated to mopping up UBS's toxic assets.

We knew about the cross border case but we didn't know about the extra writedowns of the SNB which are a bit disappointing, although not unexpected, said Peter Thorne, a banking analyst at Helvea.

UBS said the impact of the U.S. fine and the asset price adjustment after tax was negative for 1.190 billion Swiss francs.

The Swiss bank came to the verge of bankruptcy during the credit crisis and had to be rescued by the Swiss state. As criticism mounted over the U.S. case, it replaced its CEO and chairman in the last fortnight to restore investor confidence.

Analysts said new CEO Gruebel was trying to grapple with the bank giant's crisis by getting all the bad news out at once.

The new CEO is probably trying to do some kitchen sinking, Venditti said, meaning Greubel intends to announce all of the bad financial news in one go.

Former UBS CEO Luqman Arnold, a shareholder who clashed with management last year, was quoted on Wednesday in newspaper Tagesanzeiger as saying he was upbeat about the bank's future.

Arnold, who is still trying to recover his 2.8 percent stake in UBS from the administrators of collapsed bank Lehman Brothers, praised the choice of Gruebel and said the future of the bank would depend heavily on the results of a U.S. tax probe into UBS.

The low-point at UBS is near. It depends on the U.S. attacks on UBS and on which measures the G20 countries decide to take against financial centers with banking secrecy and offshore banking, Arnold told the newspaper in an interview.

Arnold said he did not think the bank could collapse, noting that it still had major advantages, including being the world's biggest wealth management business.

(Additional reporting by Jason Rhodes, Emma Thomasson; Editing by Rupert Winchester)

($1=1.157 Swiss Franc)

Investment Credit Suisse