Swiss bank UBS posted its first quarterly net profit since Oswald Gruebel took the helm a year ago but clients withdrew far more money than forecast, signalling he may need more time to steady the ship.
UBS, left damaged by the credit crisis and a bitter US tax row, is struggling to secure the sustainable recovery it needs to win back the trust of clients and investors, particularly as a US settlement is now in question and the Swiss banking industry's culture of secrecy remains under attack.
Pressure from an aggressive Italian tax amnesty in the final quarter of 2009 added to persistent brand damage that has hampered UBS' performance in the last two years, and Mr Gruebel said the bleeding of client money would continue.
"In the immediate future we still expect to report outflows," Mr Gruebel and chairman Kaspar Villiger - a former Swiss minister brought in to help clinch the US tax deal - told investors.
UBS posted fourth quarter net profit of 1.205 billion Swiss francs ($1.1 billion), its first positive quarter since the third quarter of 2008, partly helped by one-off tax credits, lower-than-expected own credit charges and a cut in bonuses.
Profit was ahead of expectations of 326 million francs in a Reuters poll.
"The money outflows will dominate the discussion today so the share will likely come under pressure," said Kepler Capital Markets analyst Dirk Becker, noting margins were being eroded.
"They beat expectations but it looks like it was only because of non-operational items."
"The one big (thing) they achieved was to get back into profit in the fourth quarter, but it was expected. Obviously it would have been worse if they had not managed to do this."
Shares in UBS were indicated to open down 1.5 per cent. The stock has lost 12 per cent so far this year and is struggling to recover from an all-time low last year after the bank posted Switzerland's largest ever annual loss in 2008.
This year's fall is in line with the 11.9 per cent drop in the DJ Stoxx European banks index and better than the 14.5 per cent drop in the share price of rival Credit Suisse.
UBS' investment bank, which had shown improvements in the previous two quarters, turned positive at pretax level with a gain of nearly 300 million francs after the bank cut its balance sheet by a further 11 per cent and slashed personnel costs.
Mr Gruebel said he expected the investment bank's performance to improve 2010, although this would depend on market swings.
"The message there is that there is light in the market and we are enjoying our position while there is still light," chief financial officer John Cryan told reporters.
UBS clients withdrew a hefty 56 billion francs, up from 37 billion in the third quarter and confounding analysts' expectations that outflows would slow after the Swiss bank settled a bitterly contested probe into help it had offered rich Americans to dodge taxes.
But that deal is in question after a Swiss court ruling in January and may prove a first tough challenge for Merrill Lynch veteran Robert McCann, who was hired by UBS in late October to revitalise its scarred US wealth franchise.
While the largest withdrawals were seen at UBS' key Wealth Management and Swiss Bank division, the Americas wealth division also came under pressure, suffering net outflows of 12 billion francs, more than twice analysts' expectations.
But Mr Cryan said the positive quarterly figures should encourage clients to stop taking money out of the bank.
Mr Gruebel and Mr Villiger said they were confident the Swiss government would find "alternative mechanisms" to ensure the US tax deal was honoured.
Reuters