Cash withdrawals deteriorate UBS that posts $1.32 billion in losses

Troubled Swiss bank UBS, weighed down by further outflows from its private banking business as well as restructuring and impairment charges, reported a second-quarter loss of 1.4 billion Swiss francs ($1.32 billion) on Tuesday. The loss is the bank`s seventh in the last eight quarters as it struggles to retain private banking customers. The result was a wider loss than the 395 million franc deficit reported a year earlier, but narrowed from the first quarter, when UBS reported a loss of 1.98 billion francs, while analysts had been expecting a loss of 1.32 billion francs in the latest quarter.

The bank said that it took a restructuring charge of 582 million francs, wrote off 492 million francs of goodwill following the sale of UBS Pactual and also incurred 1.21 billion of charges due to the recovering market value of its own debt. Although Swiss levels were broadly stable and there were some inflows from Asia, private banking clients in the U.S. and Europe continued to withdraw their cash. Thus, overall net outflows were 39.5 billion francs in private banking and asset management. That was slightly less than the 43.8 billion francs of withdrawals a year earlier, but accelerated from the 14.9 billion francs withdrawn in the first quarter of 2009.

U.S. demands that it disclose details on around 52,000 American clients have further hurt UBS' reputation among rich clients, which had already been damaged by its losses in the credit crisis. That case could be nearing a conclusion after U.S. authorities said Friday that they had reached an agreement in principle with the bank and Swiss government and that the remaining issues could be solved within days. Recently appointed CEO Oswald Gruebel told analysts on a conference call that the firm must work to win back the trust of its clients, saying reputation is to be placed above everything. And after media reports that it won`t have to pay a fine as part of a settlement, shares in the group continued their recent gains.

Furthermore, the stock was broadly flat on Tuesday. The shares have dropped more than 21% over the last year and are down around 77% from their peak in mid 2007. UBS said that its pretax loss narrowed to 1.85 billion francs from 3.16 billion francs in the first quarter of the year in the investment banking business. In addition, the equities side of the business saw increased revenues, but the fixed-income, currencies and commodities arm, which has been a big growth driver for other investment banks, reported weak underlying results due to restructuring.

Additionally, the bank continued to rebuild its capital strength, with the Tier 1 capital ratio rising to 13.2% from 10.5% at the start of the quarter. The growth was helped by the sale of 3.8 billion francs of new shares and also by a further decline in the bank's balance sheet.