ZURICH, SWITZERLAND - UBS appeared to put 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, whose client inflows of 11.1 billion Swiss francs (S$14.25 billion) far outstripped forecasts after they were flat the previous quarter and following big outflows in the first half of 2010, acknowledged it still had more to do.
"Taking into account the state of the market, our result... was satisfactory. Nevertheless, it falls short of our overall ambitions for the firm," Chief Executive Oswald Gruebel and Chairman Kaspar Villiger said in a letter to shareholders.
Gruebel said on Tuesday the increase in net new money confirmed "the return of client trust and confidence" in the world's second-largest wealth manager. The bank has seen clients withdraw nearly 400 billion francs in recent years after it was bailed out following huge writedowns on toxic assets and was hit by U.S. charges that it helped wealthy Americans dodge tax.
"It looks like a high quality set of numbers," said Matthew Clark of Keefe Bruyette & Woods. "In wealth management it looks like things are back to normal. UBS has caught up with its peer group in terms of gross margin and net inflows."
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.
UBS said wealth management's gross margin on invested assets rose by 6 basis points to 98 basis points.
FOCUS ON FICC
UBS reported a pretax profit of 835 million francs at its investment bank, up from 100 million the previous quarter, but down 30 per cent year-on-year as revenues from fixed income currencies and commodities (FICC) fell 17 per cent.
Gruebel's plans to turn around the investment bank - which made the massive losses that almost felled UBS - is 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 U.S. rival Morgan Stanley MS.N 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.
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.
Some analysts have said Gruebel will have to revise his target for a pretax profit of 15 billion Swiss francs from late 2012, but he said last month he would only review the figures once there was more clarity on new capital rules.
Chief Financial Officer John Cryan told journalists on a conference call UBS was not deviating from those targets today although the bank would monitor the regulatory environment.
Gruebel has said stiff Swiss standards - which the government sent to parliament last week and could be approved this year - could force UBS to move units abroad.
"We remain concerned that the international regulatory environment increasingly lacks consistency," Villiger and Gruebel said, adding they would monitor the effect of rules on the corporate structure and take appropriate action when needed.
UBS is not paying a dividend for 2010 or for some time to come as it retains earnings to meet the tough new requirements.