UBS Posts Loss, Warns on Credit Provisioning

By KATHARINA BART ZURICH -- UBS AG, one of the hardest-hit banks in the global financial crisis, Tuesday confirmed that it posted a net loss for the first quarter, illustrating that it continues to struggle with write-downs even as rivals show signs of business picking up. The Zurich-based bank said its net loss for the three months was 1.98 billion Swiss francs ($1.75 billion), compared with an 11.62 billion franc net loss a year earlier, and cautioned that it may have to raise credit provisioning in coming quarters. AFP/Getty Images In its outlook, UBS urged caution even as it noted market sentiment -- on which its business relies heavily -- improving. The bank said year-earlier earnings were revised lower to correct accounting errors in 2008 and a reorganization of its private bank. UBS had chosen to "sweep its accounts clean" and voluntarily stop rolling forward costs such as those linked to a program to buy auction-rate securities back from U.S. clients at par, financial head John Cryan told a conference call. Several weeks ago, when it disclosed cuts of over 11% of its work force, UBS had told investors to expect a loss of nearly two billion francs for the quarter. The bank reiterated a cost-savings target of up to 4 billion francs next year compared with 2008, partly by slashing jobs. In its outlook, UBS urged caution even as it noted market sentiment -- on which its business relies heavily -- improving. Credit markets, however, only rebounded partly, and trading in complex instruments remains illiquid, the bank said. "The markets continue to be unsettled, and we remain cautious on the immediate outlook for UBS," the bank said in a statement. UBS's Tier 1 ratio -- a measure of capital strength and worry for analysts in recent quarters -- was 10.5%, which would have been even higher at 11% had the recent sale of Banco Pactual been factored in, the bank said. Analysts expressed surprise at the healthier-than-expected ratio, which one said makes another capital increase less likely. Still, the earnings are in stark contrast to rivals such as J.P. Morgan & Chase Co., Credit Suisse Group and Deutsche Bank AG, which topped expectations in recent weeks. UBS, in the process of exiting some trading areas as it clamps down on risk-taking, acknowledged the discrepancy. "We're slightly different from our competitors in that we are not big traders of credit, so we didn't benefit from some of the revenues available from credit flow trading," Mr. Cryan told the conference call. The earnings show that UBS's investment bank, which reported a 3.16 billion-franc loss before taxes, is still burdened by major write-downs from instruments bought from U.S. monoline insurers as well as leverage loans held. UBS also appears to still be struggling to contain the ugly spillover from the investment bank to its private bank, which caters to the financial affairs of wealthy individuals. Overall revenue swung into positive territory at 4.97 billion francs, from a year-earlier loss of 4.03 billion francs, though still hit by 630 million francs in trading losses, and credit loss provisions of 1.14 billion francs. The private-banking unit, which serves well-heeled private clients and retail customers in Switzerland, suffered withdrawals of 23.4 billion francs, after 123 billion francs left last year. Initially healthy in the first weeks of 2009, inflows turned to outflows after UBS settled a U.S. tax probe and handed over confidential client data, Mr. Cryan said. Though short on specifics, he indicated outflows have slowed since the second quarter began. UBS share have gained 5.9% so far this year, lagging the Stoxx Europe 600 bank index, which has gained 12%. Analysts say this reflects investor uncertainty over whether UBS can emerge from the crisis without another injection of capital, after several last year. UBS shares opened 4.3% higher in Zurich. Write to Katharina Bart at katharina.bart@dowjones.com