October 26, 2010 / 2:40 PM / 8 years ago

UPDATE 2-UBS Americas brokerage posts third-quarter loss

* Client assets up by 1 bln CHF to 743 billion CHF

* U.S. and Canada unit had net new money 300 mln francs

* Shares down 5.5 pct on NYSE (Adds analyst comment, update on IRS case, updates share price, adds background)

By Joseph A. Giannone

NEW YORK, Oct 26 (Reuters) - UBS AG’s UBSN.VX (UBS.N) battered Americas brokerage unit posted a third-quarter loss after a costly U.S. arbitration ruling, but its financial adviser ranks rose for the first time in more than a year and outflows were stemmed.

The embattled Swiss bank also said clients added 300 million Swiss francs ($292 million) of net new money during the quarter, a minuscule amount but the first time additions outpaced withdrawals at the U.S. and Canadian unit since early 2009.

A modest increase in the ranks of financial advisers, which climbed by 23 to 6,783, offered another sign that UBS had stemmed years of bleeding.

These factors, together with a rebound in the financial markets, helped boost client assets by 1 billion francs to 743 billion francs ($724 billion) during the quarter.

“The situation at the brokerage unit seems to have stabilized,” said Aite Group research director Alois Pirker. “In any other year, these results would not be inspiring, but after the hugely difficult period the firm has experienced lately, not losing client assets or financial advisers can be seen as quite an achievement.”

Overall, the UBS brokerage business posted a pretax loss of 47 million Swiss francs ($46 million), compared with 110 million francs ($107 million) of pretax income a year earlier.

The Zurich-based bank, which reports its results in Swiss francs, said the unit’s results reflected the negative impact of a weakening U.S. dollar and sluggish client activity.

It was the unit’s sixth quarterly pretax loss since the first quarter of 2008. Excluding a 78 million-franc arbitration ruling in August, UBS said the unit turned a 31 million franc profit. [ID:nLDE69O0N5]

Shares of UBS fell after the bank reported an unexpected investment bank loss, with weak trading results overshadowing the welcome news that client withdrawals had reversed for the first time in nearly two years. UBS shares were down 99 cents or 5.5 percent at $16.93 on the New York Stock Exchange in early afternoon.


UBS, roiled by massive credit-crisis losses, regulatory violations and charges that it helped 52,000 Americans hide billions of dollars in untaxed assets in secret Swiss accounts, saw its storied wealth management franchise coming apart at the seams.

In the United States, it suffered 37.5 billion francs in withdrawals in the previous five quarters while hundreds of brokers quit to join rival firms. A decade of expansion since the takeover of New York’s PaineWebber was quickly unraveling.

Wednesday will mark the one-year anniversary of the arrival of UBS Wealth Management Americas Chief Executive Robert McCann, who abandoned the bank’s ambitions to build a 10,000-broker firm like Merrill and set about seeking a new path for a firm now dwarfed by its larger, bank-owned rivals.

McCann, who led Merrill’s Thundering Herd of brokers for six years, set out to reverse a wave of broker defections. Between March 2008 and June 2010, the number of brokers fell by nearly 2,000 despite efforts by his predecessors to pay top dollar for hundreds of adviser recruits.

UBS continues to pay the price for its hiring spree in 2008 and 2009, which inflated personnel expenses. Overall quarterly expenses fell by 7 percent, excluding the arbitration award, as McCann shed excess real estate and cut jobs.

The Americas unit now employs 1,400 fewer people than it did last year. Headcount — including both front-line advisers and the many support staff — is down nearly 5,000 jobs since early 2008 to about 16,300 at the end of September.

Yet revenue fell to 1.34 billion francs ($1.31 billion), down 10 percent from the second quarter and 3 percent less than last year. UBS cited a weakening U.S. dollar against the Swiss franc as well as, like other U.S. brokerages, “unusually low client activity levels.”

As a result, UBS is spending $1.03 for every dollar of revenue the U.S. wealth business takes in — the kind of results that embolden critics who want to see the Swiss bank part ways with the U.S. brokerage unit.


Putting a big dent in the encouraging results, though, was a FINRA arbitration panel ruling that ordered UBS to pay $81 million in damages to a Bethesda, Maryland, cellphone marketer that purchased auction-rate securities through the brokerage.

UBS was among the largest sellers of auction-rates, debt securities widely marketed as a cash-equivalents that became impossible to sell when credit markets seized up in 2007 [ID:nN04257538], prompting outraged cries from investors who could not cash out.

Regulators forced UBS to repurchase $22.7 billion of auction rates and the Securities and Exchange Commission continues to investigate the role of some UBS executives. In March, UBS also agreed to buy $200 million in auction-rates from investors not covered by the initial agreement.

That said, UBS noted the U.S. Justice Department moved to dismiss all charges that were previously deferred. With Switzerland’s promise to deliver more account names to U.S. authorities, the Internal Revenue Service confirmed it will withdraw the rest of its 2009 “John Doe” summons on Nov. 15.

“These are the final steps to resolve this matter completely,” UBS said in its quarterly shareholder letter.

The business had also suffered a loss of customers — client assets fell by $125 billion, or 14 percent, since June 2008 — as well as a series of regulatory set-backs, like the auction-rates mess. ($1 = 0.9835 Swiss franc) (Reporting by Joseph A. Giannone; Editing by Derek Caney and Matthew Lewis)

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