(Bloomberg News) UBS AG, Switzerland's biggest bank, attracted more funds from wealthy clients in the first quarter than analysts estimated, sending the company's shares to the biggest advance in three months.
UBS jumped as much as 6.7 percent in Zurich trading after saying its wealth management units attracted 10.9 billion Swiss francs ($12 billion) in net new funds, more than the 8.8 billion-franc estimate of analysts surveyed by Bloomberg.
"I'm very impressed," said Ralph Silva, a strategist at Silva Research Network, in an interview on Bloomberg Television today. "UBS has done an incredible job over the past few years. It's an incredible feat, if you consider how poor the UBS brand was a mere 12 months ago."
Chief Executive Officer Sergio Ermotti and Chairman Kaspar Villiger said that the unresolved sovereign-debt crisis in Europe and questions over the economic and market outlook may restrain growth in new money and revenue in the coming quarters. UBS is shrinking its investment bank by almost half to focus more on business with wealthy customers.
UBS rose 5.5 percent to 11.95 francs by 10:37 a.m., the biggest gain since Jan. 19. The stock's 6.9 percent advance this year compares with a 5.2 percent gain in the 43-company Bloomberg Europe Banks and Financial Services Index and a 1.8 percent decline at Credit Suisse Group AG, its biggest Swiss competitor.
Wealth Management
Net income in the first quarter fell 54 percent to 827 million francs from 1.81 billion francs in the year-earlier period, after a charge related to the company's own debt led to a loss at the investment bank. Profit surpassed the average estimate of 810.9 million francs in a survey of nine analysts.
Wealth management profit rose 24 percent to 803 million francs, helped by a reduction in expenses related to changes in the company's Swiss pension plan, while wealth management Americas increased earnings 71 percent to 190 million francs.
UBS managed 1.5 trillion francs in assets for wealthy clients at the end of March. The company, which posted the biggest loss in Swiss corporate history in 2008, saw net inflows resume in the third quarter of 2010 after customers pulled a net 233.7 billion francs in the 10 prior quarters.
"The improved net new money inflows, especially from Switzerland and emerging markets, show that confidence has returned to the bank and profitability is improving," Teresa Nielsen, an analyst at Vontobel Holding AG, said in a note. "The bank is well capitalized to withstand potential economic shocks."
'Headwinds' For Growth
The bank's Tier 1 capital ratio rose to 18.7 percent at the end of March from 15.9 percent at the end of 2011. UBS said in November it intends to cut risk-weighted assets at the investment bank by 145 billion francs from 300 billion francs by 2016, under Basel III rules. Risk-weighted assets at the investment bank were cut by about 21 billion francs in the first quarter.
Lack of progress on the European debt crisis and economic concerns "would make further improvements in prevailing market conditions unlikely and would have the potential to continue the headwinds for revenue growth, net interest margins and net new money," Ermotti, 51, and Villiger, 71, said in a letter to shareholders today.
"Nevertheless, we believe our wealth management businesses as a whole will continue to attract net new money, as our clients recognize our efforts and continue to entrust us with their assets," they said.
Debt Charge
UBS was ranked the third-biggest wealth manager by assets under management after Charlotte, North Carolina-based Bank of America Corp. and New York-based Morgan Stanley in a survey published in July by Scorpio Partnership, a London-based provider of research and industry analysis.
UBS's earnings in the quarter were burdened by a 1.16 billion-franc charge related to the bank's own debt. The accounting charge stems from a rule that requires banks to book a loss if the price of their debt increases. The investment bank posted a pretax loss of 373 million francs compared with a profit of 833 million francs a year earlier. Excluding the charge, the unit had a pretax profit of 730 million francs.
Leadership Changes
The company said in March that Andrea Orcel, a top Bank of America dealmaker, will join in July to run the investment bank with 45-year-old Carsten Kengeter. Orcel, 48, who joined Merrill Lynch & Co. in 1992, was among the biggest dealmakers when the firm was independent, and was named chairman of global banking and markets after Bank of America acquired Merrill Lynch in September 2008.
The Italian banker, who got a reported $33.8 million in compensation for 2008, will be joining other former Merrill Lynch employees at UBS, including Ermotti, Robert McCann, 54, who heads business in the Americas, and Mike Stewart, 43, who heads the global equities business at the investment bank.
UBS was shaken by the discovery of a $2.3 billion loss from unauthorized trading in September, which resulted in the departure of CEO Oswald Gruebel, 68. Villiger plans to step down at the bank's annual shareholder meeting tomorrow after former Bundesbank President Axel Weber, 55, is elected to the board of directors.
Credit Suisse last week reported that its securities unit benefited less from the rebound in debt markets in the first quarter than U.S. competitors as the Zurich-based company accelerated the reduction of risk-weighted assets. Net income fell to 44 million francs from 1.14 billion francs in the year- earlier period after accounting charges related to Credit Suisse's own debt and costs for 2011 bonuses.