* Q2 pretax loss of 67 mln Swiss francs
* Sees net asset outflows of 2.6 billion francs
* Lost net 107 advisers over the quarter (Adds target details, analyst comment)
By Helen Kearney
NEW YORK, July 27 (Reuters) - UBS Wealth Management Americas lost assets and shed advisers in the second quarter, earning the distinction of being UBS AG's UBSN.VX (UBS.N) only unprofitable division. But things are looking up.
More productive advisers overseeing more client assets show that efforts by former Merrill Lynch brokerage chief Robert McCann to transform the business into a smaller, high-end wealth manager are starting to bear fruit, analysts say.
Although the division's adviser force has been reduced by almost a quarter since its March 2009 peak, the average revenue generated by each adviser jumped by a third to $793,000 in the second quarter compared with the prior year.
"It's going in the right direction," said Alois Pirker of Boston-based financial industry consultants Aite Group. "This is very much the beginning. If you look at their targets, there is still a good chunk a work that needs to be done."
UBS brokers were still less productive than those at market leader Merrill Lynch, who produced an average $853,000, but they exceeded the $679,000 average at Morgan Stanley (MS.N).
UBS advisers also oversaw more assets than in the same quarter last year -- an average of $95 million per broker, up from $81 million.
That edged out rival Morgan Stanley, where advisers on average handle $83 million.
And while UBS suffered net withdrawals of 2.6 billion Swiss francs ($2.47 billion), it had inflows of 1.7 billion francs if dividends and interest payments is included.
Using the same measure, Morgan Stanley reported second-quarter wealth management outflows of $5.5 billion.
Still, there is much to do before the division reaches the targets set by McCann for the next three to five years.
Earlier this year, McCann said he wanted each of his advisers to generate an average of 1 million francs and division profit to exceed 1 billion francs.
McCann, who joined in October, also intends to cut costs at the division to between 80 and 85 cents for every dollar of revenue within three to five years.
In the latest quarter, the ratio was 104 percent -- meaning UBS spent more than it took in.
UBS took a 146 million franc charge for cutting staff and closing offices. Second quarter costs were also inflated by pay packages handed out in late 2008 and early 2009.
Over the year, the division's workforce of 18,774 was cut by 13 percent as a brokerage force of 8,000 advisers fell to 6,760 by June 30.
McCann previously said UBS had offices and support staff to accommodate a brokerage force of 10,000. He now aims to stabilize adviser headcount at around 7,000.
"It's a good sign that they're taking costs out of property," said Aite's Pirker. "It means the cost-to-income ratio target is achievable."
The cuts and charges contributed to a pretax loss for the quarter of 67 million francs. Without the charges, the business would have posted a pretax profit of 79 million francs, more than double its profit from the first quarter.
The division lost a net 107 advisers during the quarter.
Scott Smith of Boston-based consultants Cerulli Associates said it would take time to turn around such a large enterprise and that he now expected to see more active recruiting.
"They're taking an inventory before aggressively targeting advisers. They want to wait until their platform reflects the business they want to project rather than the legacy they have inherited," Smith said.
Analysts and investors have long complained that the U.S. brokerage business, once known as Paine Webber, is a drag on the Swiss bank's financial performance and should be sold or spun off. Those cries only grew louder last year. (For details of UBS AG's earnings click on [ID:nLG354725])
UBS Group Chief Executive Oswald Gruebel, who recruited McCann to help revive the bank, said on Tuesday he remained committed to the U.S. business.
"It will be a very profitable business going forward," he told Reuters. "But first we have to bring it in shape. In the last few months we have solidified our niche. All along it is a good business to be in, even if it has a high cost base."
Additional reporting by Lisa Jucca in Zurich; Editing by Ted Kerr and Tim Dobbyn