UBS AG, the world’s biggest money manager for the wealthy, may report tomorrow that private-banking clients removed funds for the first time in almost eight years in the second quarter as losses at the securities unit mounted.
Clients probably withdrew a net 5 billion Swiss francs ($4.6 billion) in the period, according to the median estimate of 10 analysts surveyed by Bloomberg. UBS’s wealth management units, which oversee 1.84 trillion francs, attracted an average of 37.9 billion francs in each quarter last year.
The withdrawals may signal an erosion of confidence in UBS after it amassed 25.4 billion francs of net losses, the most of any bank, in a mistimed bet on the US mortgage market. UBS, led by Chief Executive Officer Marcel Rohner, has also been buffeted by US regulators’ claims that it helped clients evade American taxes and fraudulently sold auction-rate securities.
“Within private banking, reputation is something that takes a very long time to build and that you can lose very quickly,” said Andrew Lynch, who manages about $2.5 billion at Schroder Investment Management Ltd. in London. Withdrawals are “a lead indicator of concern amongst their clients”.
UBS said Aug. 8 it will buy back as much as $18.6 billion of auction-rate securities and pay $150 million of fines, the largest settlement in a US probe into whether banks stuck clients with hard-to-sell bonds. The bank, which will set aside about $900 million in the second quarter to account for the settlement, follows New York-based Citigroup Inc and Merrill Lynch & Co in yielding to regulatory pressure to make investors whole.
Near ‘Breakeven’: The settlement “provides further relief, beginning in September, to investors who have been understandably frustrated by the industry-wide failure of the ARS market,” Marten Hoekstra, the head of UBS wealth management in the Americas, said in a statement.
The largest Swiss bank may report a second-quarter net loss of 281 million francs, compared with a profit of 5.55 billion francs a year earlier, analysts estimated before the Aug. 8 announcement. The bank said in July results were “at or slightly below breakeven,” in the quarter after about 3 billion francs in tax credits. Following the settlement, UBS said its results would still be “consistent” with that guidance.
“With the settlement UBS gets rid of the ARS problem already with second-quarter results,” Georg Kanders, an analyst with WestLB, said in a note. “What is positive is that this burden is already included in the result around breakeven.”
UBS rose 78 centimes, or 3.6 per cent, to 22.78 francs by 10:22 am in Swiss trading. The shares fell 51 per cent this year, the fourth-worst performance on the 71-company Bloomberg Europe Banks and Financial Services Index.
‘Shocked and Insecure’: The securities unit may post a pretax loss of 5 billion francs after about 5.5 billion francs in writedowns tied to the US sub-prime crash, according to analysts. The division had more than $38 billion of markdowns in the previous nine months.
Wealth management earnings probably dropped 20 per cent to 1.33 billion francs, analysts estimated.
