February 29, 2024

DealBook: Net Inflows Help UBS Beat Expectations

10:01 a.m. | Updated

UBS, the biggest Swiss bank, on Tuesday reported strong growth this year in its core wealth management business, welcoming what it said were signs that it was regaining the trust of clients who deserted the bank during the financial crisis.

Net inflows of new money came in at 11.1 billion Swiss francs ($12.7 billion) in the first quarter, compared with “very small inflows” in the final quarter of 2010, UBS said, “providing a sign of client confidence in our business.” In the first quarter of 2010, UBS had net outflows of 18 billion francs.

The bank, based in Zurich, said net profit fell 18 percent, to 1.8 billion francs, from 2.2 billion francs in the period a year earlier. But that was still better than the average estimate of 1.7 billion francs among analysts surveyed by Bloomberg. The bank said profit declined as lower market activity weighed on trading volume and as the dollar weakened against the Swiss currency.

“I thought overall it was a pretty reassuring set of numbers, but mainly it was that net new money figure,” said Matthew Czepliewicz, a banking analyst at Collins Stewart in London. “Investors had been looking for an indication that client confidence was returning, and that was probably the sign they needed.”

Shares of UBS rose 5.7 percent in Zurich trading on Tuesday; they have gained more than 14 percent since the start of the year.

“I am satisfied with our result, considering market activity during the first quarter,” Oswald J. Grübel, the bank’s chief executive, said in a statement, “and I am particularly pleased by the increase in net new money, confirming the return of client trust and confidence.”

Clients withdrew an estimated 200 billion francs from UBS after the bank got a government rescue in October 2008 following huge losses on its United States mortgage business, and after it settled an investigation of suspected tax evasion by some of its American clients.

Over the three years through the end of 2009, UBS posted combined net losses of more than 29 billion francs.

Regulators in Switzerland have taken a harder line on bank solvency than in virtually every other major developed economy, putting pressure on UBS and its crosstown rival, Credit Suisse, to increase capital buffers against financial shocks.

UBS reiterated that it had decided not to pay dividends “for some time to come, in order to accumulate earnings that will augment our capital base.”

UBS said its Tier 1 capital ratio rose to 17.9 percent on March 31 from 17.8 percent at the end of December. The bank also cut its balance sheet to 1.29 trillion francs, down 26 billion francs from the end of 2010.

Despite the evidence of overall improvement, questions remain about the future of UBS’s investment bank, where first-quarter pretax profit fell to 835 million francs from 1.2 billion francs in the first three months of 2010.

Mr. Czepliewicz of Collins Stewart said the investment banking business — particularly the area focused on fixed-income, currency and commodities — would most likely be downsized eventually. After sharply cutting the business during the financial crisis, he said, UBS had probably moved too late to start rebuilding the operation, leaving it with a cost structure that was out of line with its profitability.

A final decision on that business will have to wait until the shape of the international regulatory environment is clearer, Mr. Czepliewicz said.

Article source: http://feeds.nytimes.com/click.phdo?i=2260af7a0154cd9fe96ea3e52e99928e

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