UBS finally returned to profit for the fourth quarter of 2009, reporting net income of SFr1.2 billion with even its investment banking division chipping in SFr300 million and no longer being encumbered by large fair value adjustments on its own debt or bad investments. Investors will no doubt welcome the bank’s first positive result since the SFr283 million it recorded in Q3 of 2008, which was followed by four consecutive loss-making quarters. But there will be no wild celebrations.
Its results reported today also show that the loss of customer assets in the private wealth management division continued unabated in the final quarter of last year, when outflows reached SFr33 billion, exceeding the pace at which clients pulled their funds out of UBS in the second and third quarters of 2009. Investors in UBS stock are unlikely to place much faith in the capacity of the new senior management team to turn the bank around until these client outflows stop.
However, Oswald Grübel, chief executive of UBS, argues that this first success – returning to headline profitability – will give the bank a much better chance of stemming client defections and even reversing them. In a wide-ranging interview in the February edition of Euromoney, he says: “I talk to a lot of clients who want to know what is going on at the bank; always one of their key concerns is that they want to see us turning profitable again. No one likes a bank that’s losing money.”
So this is a highly significant moment, according to Grübel.
“We are making progress in returning to profitability. That will certainly help with clients who have reduced the amount of money they hold with us – partly out of consideration of our reputational damage and the hideous mistakes we made – but who are waiting for us to turn profitable again before they do more business with us. Money will absolutely flow back. I am convinced of this. And in the meantime we are improving the offering for clients.”
Matthew Clark, analyst at Keefe, Bruyette & Woods, points out that UBS shares on the eve of its earnings announcement were just 7% above the level at which the bank raised capital last June. Global equity markets have risen 13% over the same period. He says: “We believe UBS remains an attractive play on the recovery of a high quality and resilient collection of businesses.”
Even while losing client assets under management, the wealth management and Swiss corporate and retail bank divisions together achieved SFr1.1 billion of profit for the final quarter of 2009, up 40% on the third quarter thanks to cost cutting. And Grübel is hopeful that the bank can improve on this. He says: “The key challenge for us is not just to attract client funds but to convince clients to do something with those funds, to invest them rather than leaving them in cash.” He is overhauling the way in which the bank operates to make this more likely. “If we have a strong opinion on markets, we need to get it out to private clients fast – to be more sales-focused, rather than simply wait for financial advisers to pluck it out from the bank’s systems.”
Read the full interview:
Euromoney February 2010
Oswald Grübel was shocked when he turned up at UBS a year ago by its lack of integration and poor risk management. He is trying to mend the bank’s tattered reputation and staunch the outpouring of client money. But his biggest challenge may be convincing the markets that his methods are working.