Tuesday November 4, 12:21 PM
UBS sees progress in staunching outflows but warns of loss
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ZURICH (AFP) - Switzerland's biggest bank UBS (Virt-X: UBSN.VX - news) warned on Tuesday that earnings might be hit in the fourth quarter, but saw "encouraging signs" of staunching massive asset outflows after the government stepped in with a big rescue package.
UBS has incurred billions of writedowns owing to the financial turmoil, and this has caused disappointed clients to withdraw 83.6 billion francs' worth of assets in the third quarter alone.
UBS Chief Financial Officer John Cryan admitted that the haemorrhage continued at the same pace during the first two weeks of the fourth quarter and only abated somewhat after the Swiss government stepped in with a rescue package worth almost 60 billion dollars.
"In the two weeks since the transaction with the Swiss National Bank, we have seen some more encouraging signs," he said.
The outflow, he explained, was due primarily to clients "selling investments and withdrawing proceeds to pay down debt", as well as spreading their assets around different banks after the shock collapse of American banking titan Lehman Brothers (NYSE: LEH - news) .
"We think that trend will continue, in that case conditions would continue to be challenging," he said.
Switzerland last month took a temporary stake of 9.3 percent in UBS and lent a massive 54 billion dollars to the bank to isolate its illiquid assets in a bid to stabilise the financial sector.
Swiss central banker Philipp Hildebrand in remarks published on Sunday also called on state-backed banks to stop preying on UBS, saying that moves by cantonal banks to lure UBS clients away were against taxpayers' interests.
Overall, UBS posted a third-quarter profit of 296 million Swiss francs (200 million euros, 251 million dollars) but warned that the fourth quarter would be tough.
"UBS expects that the conditions seen at the beginning of the fourth quarter will continue to affect clients' assets, and therefore UBS' fee-earning business," it said in a statement.
The bank (NASDAQ: TBHS - news) added that its fourth-quarter results would also be impacted by the state's aid package.
This includes a loss to be realised due to a sale of its illiquid assets to the Swiss National Bank under the rescue package.
In addition, as the quality of its debt improved, the bank may also have to take a charge of "some or most" of 4.8 billion francs on own credit gain.
Cryan added that based on current figures, the charge would be "something like two billion francs".
Bank Vontobel's analyst Panagiotis Spiliopoulos said UBS had "reached its inflection point" with the government's rescue plan.
"While the environment remains difficult, the company has substantially reduced its cost base and will return to profitability in 2009," he said, rating the stock a "buy."
At mid-day, the stock was showing a fall of 0.37 percent to 18.88 Swiss francs, underperforming an overall market which was trading firmly in positive territory, up 1.98 percent.
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