UBS seen curbing outflows as turnaround nears

By Lisa Jucca

ZURICH (BestGrowthStock) – Client money withdrawals at UBS (UBSN.VX: ) (UBS.N: ) were expected to be at their lowest level since 2008 when the Swiss bank reports results on Tuesday, but sovereign debt concerns will dent investment banking revenue.

A string of weak U.S. banking earnings and results posted by Swiss competitor Credit Suisse (CSGN.VX: )CS.N> pointed to overall weakness in the fixed-income business, the engine behind chief executive Oswald Gruebel’s recovery strategy.

Analysts polled by Reuters expected Switzerland’s largest bank by market value to post second-quarter net profit of 1.34 billion Swiss francs ($1.28 billion), a third less than in the first quarter but bouncing back from a 1.4 billion loss a year ago.

Clients were expected to have drained a total of 11 billion francs, the lowest quarterly withdrawal UBS has experienced since it started to bleed assets at the start of 2008, but not sufficient for Gruebel to say he has turned the tide.

“UBS’s first quarter was surprisingly good. But after the batch of banking earnings I doubt UBS will not suffer this quarter,” said WestLB analyst Georg Kanders.

On Thursday, Credit Suisse posted second-quarter profit (Read more your timing to make a profit.) dragged down by its fixed income business as sovereign debt fears hit markets, despite beating forecasts on strong equities, and tax and accounting gains.

UBS’s trading profit was forecast to halve to 1.3 billion francs from the previous quarter, signaling Gruebel still needed to prove the investment banking was back on track.

Factors such as 600-700 million francs of accounting profit on its own debt will be nearly offset by a 300 million charge for Britain’s bonus tax and a 150 million charge for restructuring costs at UBS’s Wealth Management Americas division, analysts said.

U.S. TAX ROW BEHIND

The Swiss parliament’s backing on June 17 of a U.S.-Swiss tax deal crucial for UBS should help Gruebel, a former Credit Suisse boss pulled out of retirement in 2009 to turn around UBS, to reassure wealthy clients the bank has put last year’s damaging U.S. tax fraud probe behind.

But the vote came too late in the quarter to have had a significant impact in asset trends. “We expect confirmation of a stabilization in client advisor outflows and an improvement in net new money outflows,” Vontobel analyst Teresa Nielsen said.

Gruebel said earlier this year he expected UBS to report asset inflows again by the year-end. Kander said this may not happen until the start of next year, adding: “The focus remains on the issue of net new money.”

Client reluctance to invest in complex products or alternative investments such as hedge funds led to a shrinking of Credit Suisse’s gross margins to 121 basis points in wealth management at the end of the second quarter.

But UBS’s gross margins, a key indicator of a private bank’s profitability, should not suffer much as they are already at a depressed level below 100 basis points, on average.

UBS shares have risen 8 percent this year, outperforming an 4.5 percent fall in the broader European STOXX 600 banking index (.SX7P: ).

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(Editing by Dan Lalor)

UBS seen curbing outflows as turnaround nears