The net loss widened to 1.4 billion Swiss francs ($1.32 billion) in the second quarter from 395 million francs a year earlier, the Zurich-based bank said in a statement today. The loss was smaller than the 1.5 billion-franc median estimate of 11 analysts surveyed by Bloomberg.
Chief Executive Officer Oswald Gruebel, who cut 7,500 jobs and sold a Brazilian unit since joining in February, said that while markets improved in the second quarter, a sustainable economic recovery “is not yet visible.” A settlement of the U.S. lawsuit seeking data on 52,000 clients may bring UBS closer to Gruebel’s goal of halting withdrawals by wealth management clients, which amounted to 22.3 billion francs in the quarter.
“By confirming it has reached an agreement over the tax fraud case, UBS has put legacy risks behind,” Alain Tchibozo, a London-based analyst at ING, said in a note before the release of earnings, raising his rating on UBS to “buy” from “hold.” “Management will now have plenty of time to focus on delivering the restructurings promised.”
UBS gained 6.5 percent in Swiss trading since July 31, when U.S. Justice Department attorney Stuart Gibson said in a telephone conference call with District Judge Alan Gold that the U.S. and Switzerland “have reached an agreement in principle on the major issues” related to the lawsuit. Remaining points may be settled before Aug. 7, he said.
The U.S. sued UBS on Feb. 19, seeking names of 52,000 clients, a day after the bank agreed to pay $780 million to defer prosecution for helping wealthy Americans evade taxes. UBS agreed then to give the U.S. data on more than 250 accounts.
The IRS is seeking the additional names because it suspects American account holders of evading taxes. Switzerland called the case a threat to its sovereignty and said it would force UBS to violate criminal laws protecting bank secrecy. The parties declined to provide any additional information on the agreement.
“We look forward to a definitive resolution of the U.S. cross-border matter,” Gruebel and Chairman Kaspar Villiger said in a letter to shareholders. “This is a positive development in a matter that has adversely affected our efforts to regain the trust of our clients and restore momentum to our businesses.”
UBS said the second quarter earnings included a 1.2 billion-franc charge related to the company’s own debt, 582 million francs in reorganization costs and a goodwill impairment of 492 million francs related to the sale of Brazil’s UBS Pactual unit.
The bank’s securities unit reported a pretax loss of 1.85 billion francs, compared with a loss of 5.24 billion francs a year ago. Earnings at the wealth management and Swiss bank halved to 932 million francs, while wealth management Americas had a pretax loss of 221 million francs, compared with a 748 million-franc deficit a year ago. Asset management profit dropped 77 percent to 82 million francs.
Before the second quarter, UBS had amassed $53.1 billion in writedowns and losses from the financial crisis and had to raise more than $38 billion to replenish capital from investors including the Swiss government, data compiled by Bloomberg show. The bank said in June it expected a loss for the second quarter.
Zurich-based Credit Suisse Group AG, which declined government aid, posted on July 23 its second consecutive quarterly profit, beating analysts’ estimates as revenue from trading doubled. BNP Paribas, France’s largest bank, reported today a 6.6 percent increase in second-quarter profit.
UBS’s wealth-management units suffered 134 billion francs of net client withdrawals from the second quarter of last year through the first three months of 2009.
Gruebel, 65, told employees in a July 14 memo that they “must do everything” to stop money-management outflows, which continued in the second quarter. He said earnings showed “encouraging signs” as operating results improved and writedowns decreased.
UBS still plans to combine wealth management and Swiss banking with a securities business and asset management, Gruebel said at the time. The bank should focus on rebuilding and protecting its reputation, integrating its businesses more closely and increasing the quality and efficiency of servicing clients, he said.
Gruebel has shaken up top management since taking over from Marcel Rohner, 44, in February. UBS appointed Chi-Won Yoon, 50, as chairman and CEO for Asia-Pacific in June, replacing Rory Tapner, 49. Gruebel in April hired former Credit Suisse colleague Ulrich Koerner, 46, as chief operating officer and named Alexander Wilmot-Sitwell, 48, and Carsten Kengeter, 42, co-heads of the investment bank, replacing Jerker Johansson, 53.