Beleaguered UBS finally has some good news from an unlikely source

By Elena Logutenkova  |   2008-7-5  |     NEWSPAPER EDITION

UBS AG, the European bank hardest hit by the United States subprime crisis, said yesterday it may avoid a loss in the second quarter after about 3 billion Swiss francs (US$2.9 billion) in tax credits.

UBS shares rose as much as 8.2 percent in Swiss trading after the Zurich-based bank said second-quarter results may be "at or slightly below break-even."

Citigroup Inc analysts during the week forecast a net loss of 4.56 billion francs for the quarter and about 7 billion francs in asset writedowns, Bloomberg News reported.

CEO Marcel Rohner is cutting 5,500 jobs, shutting businesses at the investment-banking unit and trying to stem defections among wealthy clients after 25.4 billion francs of net losses in the previous three quarters.

UBS, scheduled to publish quarterly results on August 12, said yesterday it saw no need to raise further capital.

"The results are better than analysts expected because of tax credits and UBS clearly wanted to show that it didn't do that bad," said Florian Esterer, a senior portfolio manager at Swisscanto Asset Management, which oversees about US$63 billion.

Banks globally have announced US$402 billion in writedowns and credit losses related to the subprime crisis.

Investors pooled

Markdowns at UBS of more than US$38 billion in the previous three quarters led the bank to raise more than US$29 billion of capital from investors this year.

UBS shares climbed 1.02 francs, or 4.9 percent, by 9:06am in Zurich trading yesterday. The stock fell 66 percent over the past year, cutting the company's market value to 65.1 billion francs.

The Swiss bank said the tax credits were related to its losses to date, without elaborating.

UBS, which posted a profit of 5.55 billion francs in the second quarter of last year, said financial-market turmoil contributed to writedowns and a loss at the investment bank in the past three months.

UBS's money-management division suffered client defections in the quarter, with the withdrawals most pronounced in April, the bank said.

"What worries me arethe net new money outflows, which indicate a serious problem for the franchise," Esterer said.

IRS inquiry

The United States Department of Justice is investigating whether UBS helped rich clients evade American taxes, and a federal judge during the week authorized the Internal Revenue Service to issue a summons to the bank for client data as part of the inquiry.

The bank has said that it's "working diligently" with both Swiss and US authorities.

Growth in assets from affluent clients at UBS, the largest manager of money for the wealthy, slowed to 8.8 percent in 2007 from 13 percent in the previous year, according to an annual survey by Scorpio Partnership.

Chairman Peter Kurer told shareholders at the annual meeting that he would lead a review of all the bank's businesses to make them better complement the wealth-management unit, which he called UBS's "core franchise."

The bank plans to inform shareholders about the review at a meeting on October 2.