Published November 5, 2008
UBS breaks losing streak with Q3 profit
Earnings hit 296m francs; bank doing better in Asia Pacific

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(ZURICH) UBS posted a net profit of 296 million Swiss francs (S$377 million) for the third quarter yesterday - its first after four consecutive quarterly losses.
It predicted customers would continue withdrawing funds in the last three months of the year but the government bailout is helping to stem the outflow.
The bank benefited from a 913 million franc tax credit and a revaluation of its credit positions that led to a 2.21 billion franc gain on its books.
Switzerland's largest bank said its investment business recorded writedowns and losses of US$4.4 billion during the quarter. Net new money (a key indicator of future business) remained negative during the three months to September, with customers withdrawing 84 billion francs during the period.
It had already reported most of its third-quarter figures last month when it announced it was getting a 6 billion franc capital injection from the Swiss government and was also unloading US$60 billion of risky assets into a central bank fund.
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The bank, the world's largest wealth manager, said yesterday that it had seen some improvement in client flows since the central bank deal: 'Whilst the situation was very difficult at the start of October, there have been encouraging signs for net new money flows following the announcement.' But it expected market conditions to remain 'challenging' and shrinking client assets to affect fees.
'UBS will be able to reverse outflows only when the company goes back to profit,' said Georg Kanders, a bank analyst with WestLB.
But UBS has been doing better in Asia Pacific. Rory Tapner, chairman & chief executive of UBS Asia Pacific, said that to the end of the third quarter and despite the trying market conditions, the bank performed well in Asia Pacific.
'Wealth management saw positive net new money inflows year to date and global asset management recorded year-on-year revenue growth.
'Investment banking maintained its position as the top revenue-generating business in the region while FX (foreign exchange) posted outstanding absolute performance,' said Mr Tapner.
'The short-term economic environment is very challenging across the region, but the medium to long-term economic outlook for Asia Pacific remains attractive and we will continue to invest selectively in our businesses,' he added.
The stock is down nearly 60 per cent since the start of the year, slightly underperforming the European index, which is 52 per cent lower this year.
UBS CFO John Cryan reiterated that the bank should return to profitability in 2009 but said he expected the bank to take a 2 billion franc hit in the fourth quarter if its funding costs remain at current levels.
The third quarter was helped by a gain on its own credit of 2.2 billion francs, plus a tax credit of 913 million francs.
UBS also expects a loss of about 4 billion francs on equity sold to the central bank fund in the fourth quarter.
'The total loss is about 6 billion Swiss francs. It cannot be offset by new revenues. They will show a loss in the fourth quarter,' WestLB's Mr Kanders said.
UBS was hit earlier than most of its rivals in the financial crisis by its investment bank's foray into the US sub-prime market. It has made more writedowns than any other European bank, adding a further US$4.4 billion of writedowns in the quarter to bring its total in the crisis to almost US$49 billion.
About 6 billion francs will be used to bolster the bank's reserves, resulting in the government holding a 9.3 per cent stake in UBS.
Most of the bailout money will be used to transfer sub-prime-related assets and other high-risk securities from UBS to a so-called 'bad bank', whose sole purpose is to sell the risky investments. Any profits will be split between UBS and the Swiss National Bank.
However, its legal woes continue as it faces dozens of claims in the US from clients who bought '100 per cent principal-protected notes' issued by Lehman Brothers Holdings that are now almost worthless.
Six attorneys hired to represent clients in the cases say UBS brokers touted the so-called structured notes as low-risk investments and failed to emphasise they were unsecured obligations of Lehman, which filed for bankruptcy in September. -- Reuters, AP, Bloomberg