UBS Sees Second-Quarter Net at or `Below Breakeven'

By Warren Giles and Elena Logutenkova

July 4 (Bloomberg) -- UBS AG, the European bank hardest hit by the U.S. subprime crisis, expects to post a second-quarter result ``at or slightly below break-even,'' helped by about 3 billion francs ($2.9 billion) in tax credits.

UBS, which posted a profit of 5.55 billion Swiss francs ($5.4 billion) a year earlier, said that market turmoil contributed to writedowns and a loss at the investment bank. The bank had a negative flow of net new money, which was worst in April, and will publish full quarterly results Aug. 12 as planned, the Zurich-based bank said today in a statement.

Chief Executive Officer 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.

``Outflows in the wealth management business are just sending a poor signal about growth potential and investor sentiment,'' Stefan-Michael Stalmann, an analyst at Dresdner Kleinwort, said in a note to clients last week. ``The agenda in the next one or two quarters is likely to be dominated by a variety of operational challenges.''

Banks worldwide have announced $402 billion in writedowns and credit losses related to the subprime crisis. Markdowns at UBS, which amounted to more than $38 billion in the previous three quarters, led the bank to raise $29.2 billion of capital from investors this year. UBS said today that it sees ``no need to raise new equity.''

`Strategic Headache'

UBS fell 68 percent in Swiss trading over the past 12 months, cutting the company's market value to 61.6 billion francs. The stock is the fourth-biggest loser among the 59 companies in the Bloomberg Europe Banks and Financial Services Index.

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 released last week.

UBS also faces an investigation by the U.S. Department of Justice into whether the bank may have helped clients evade American taxes. Prosecutors this week got a Miami federal judge to authorize the Internal Revenue Service to issue a summons to UBS for client information as part of the probe. The bank has said that it's ``working diligently'' with both Swiss and U.S. authorities.

Strategic Review

Chairman Peter Kurer, who replaced Marcel Ospel in April, told shareholders at the annual meeting that he will lead a strategic review of all of 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 results of the review at an extraordinary shareholders meeting on Oct. 2. The meeting was called to elect four new board members, as Kurer seeks to increase the level of financial expertise on the board after criticism from shareholders including former UBS President Luqman Arnold.

UBS brought in Jerker Johansson from Morgan Stanley in mid- March to run its investment-banking unit. Johansson in May took control of the firm's fixed-income business from Andre Esteves, who ran it for less than 10 months and left in June.

Johansson also announced plans to shut the U.S. municipal bond business, split off proprietary trading of both stocks and debt into a separate unit within the investment bank, and hired former Morgan Stanley colleague Thomas Daula as chief risk officer for the division.

UBS is cutting about 26 percent of the headcount at its fixed-income division, and about 9 percent in investment banking and equities. The securities unit, which at the end of the first quarter employed 21,230 people, is targeting pretax profit of about 4 billion Swiss francs after markets normalize, down from 5.6 billion francs in 2006.

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net; Elena Logutenkova in Zurich at elogutenkova@bloomberg.net