Swiss bank reports wealth management improvement

Banking giant UBS appears to putting the financial crisis behind it, with money pouring back into its core wealth management arm in the first quarter, although its investment bank struggled to regain momentum.

The Swiss bank said inflows of 11.1 billion Swiss francs (£7.65 billion pounds), which far outstripped forecasts after they were flat the previous quarter and following big outflows in the first half of 2010, showed client trust was returning.

The world's second-largest wealth manager has seen clients withdraw nearly 400 billion francs in recent years after it was bailed out following huge write downs on toxic assets and was hit by US charges that it helped wealthy Americans dodge tax.

UBS said it had had strong inflows in the Asia Pacific region and emerging markets as well as from the ultra wealthy, although it continued to see outflows in Europe, where countries have been chasing tax evaders using secret Swiss accounts.

‘This wealth management inflow is the highest since the fourth quarter of 2007 and shows that UBS has now left the crisis behind even in this division, where client trust and confidence were shattered,’ said Vontobel analyst Dirk Becker.

UBS reported a pretax profit of 835 million francs at its investment bank, up from 100 million the previous quarter, but down 30% year on year as revenues from fixed income currencies and commodities (FICC) fell 17%.

Chief executive Oswald Gruebel's plans to turn around the investment bank, which made the massive losses that almost felled UBS, are under scrutiny after an exodus of top bankers and an admission he underestimated the challenge of reviving fixed income.

UBS said it expected to see some improvement in a number of business lines in the investment bank, despite constraints imposed on some of the FICC businesses by a focus on controlling risk. It also noted the competition for talent and recent base salary increases will put some pressure on the cost base.

At US rival Morgan Stanley investment banking was the biggest reason for a steep earnings decline in the first quarter, with fixed income trading the main source of that drop although the results were better than expected.

UBS said the disaster in Japan, unrest in North Africa and the Middle East and the ongoing euro zone debt crisis had dampened usually strong first quarter client activity.

The bank said it expected second quarter equity market trading volumes to stay around the levels seen in the first quarter, which should support transaction-based income in wealth management and flow trading in the investment bank.

It expects short term interest rates in the West, including Switzerland, to remain low, continuing to constrain interest margins, although wealth management's gross margin on invested assets rose by 6 basis points to 98 basis points in the quarter.

UBS is not paying a dividend for 2010 or for some time to come as it retains earnings to meet the tough new requirements being introduced in Switzerland. It may consider moving some units abroad.