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FT: UBS reels as private bank is hit by exodus

By Haig Simonian in Zurich
Published: February 10 2010 02:00 | Last updated: February 10 2010 02:00

UBS revealed yesterday it suffered a sharp acceleration of outflows from its once powerhouse private bank in the fourth-quarter, underlining the scale of the problems facing the Swiss banking group.

Net outflows from the private bank doubled to SFr33bn (£19.7bn) in the fourth quarter from the previous three months, bringing the total for 2009 to SFr90bn - an amount more than the size of most Swiss private banks.

Overshadowing a return to profitability by UBS, the withdrawals came after SFr107bn of outflows in 2008 and compared with invested assets at the end of December of SFr960bn. The outflows were swollen by the Italian tax amnesty and the sale of a Brazilian subsidiary, but UBS acknowledged staff defections and uncertainties about Swiss bank secrecy would hurt flows for some time.

Oswald Grübel, chief executive, said the tide would turn as clients and staff regained confidence in the bank because of restored profitability.

Net earnings amounted to SFr1.21bn in the fourth quarter, with profits boosted by a much lower accounting charge of SFr24m on the value of the bank's debt, and a SFr480m tax credit, as well as sharply lower costs. The fourth-quarter result compared with a SFr564m loss in the previous three months, and reduced the loss for 2009 to SFr2.74bn from SFr21.29bn the previous year. Group earnings were boosted by cost cuts and staff reductions. It paid out bonuses for group staff of SFr3bn in 2009. up from SFr1.7bn in 2008.

"The net new money was the most important figure in these results and at SFr33.2bn outflows it was far worse than expected," said Peter Thorne, analyst at Helvea, the Swiss broker.

The Italian tax amnesty alone triggered outflows of SFr22.8bn, although UBS retained SFr14.3bn within the group, vindicating its strategy of creating an "onshore" private banking network in neighbouring countries. However, net outflows from even core clients in Switzerland surged to SFr5.9bn compared with SFr3.9bn in the third quarter, although flows in Asia Pacific turned positive.

Pre-tax profits in private banking rose 40 per cent to SFr1.11bn, quarter on quarter, due to lower costs. Earnings before tax in investment banking were SFr297m, compared with a pre-tax loss of SFr1.37bn in the third quarter.

A shrinking balance sheet boosted UBS's tier one ratio - a key measure of capital strength - to 15.4 per cent at year end, compared with 15 per cent on September 30 and 11 per cent at the end of 2008. The core tier one ratio - excluding hybrid capital instruments - was 11.9 per cent. Total assets fell by 21 per cent year on year to SFr919bn, while total risk weighted assets fell by 32 per cent to SFr207bn.

See Lex www.ft.com/ubs
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