UBS needs to stem client withdrawals to turn corner

By Lisa Jucca - Analysis

ZURICH (Reuters) - Switzerland's UBS AG needs to restore clients' trust and halt massive withdrawals from its core wealth management division to prove it has overcome a financial crisis which threatened its survival.

The Swiss group became Europe's biggest bank casualty of the subprime-led turmoil after it revealed early in the crisis it was holding billions of toxic assets on its balance sheet.

Shares in UBS fell 6 percent on Monday amid concern the bank was heading for another set of bad quarterly data and analysts say they need clear signs rich clients are returning before saying UBS is out of the woods.

"The most closely watched number is net new money inflows, or outflows, in wealth management. If that number goes positive it would signal a turnaround at UBS," Dirk Hoffmann-Becking, senior research analyst at Sanford C. Bernstein, said.

UBS made $49 billion (33 billion pounds) of writedowns in 2007 and 2008 and had to be rescued by the Swiss state through a 6 billion franc (3.6 billion pound) cash injection, along with the creation of a central bank-run fund to take on $60 billion of its illiquid assets.

UBS' wealth management clients withdrew 49 billion francs in the third quarter, or about 2.5 percent of the bank's 1.9 trillion francs of assets under management at the division -- to the benefit of competitors such as Credit Suisse.

Further poor results could help prevent the tide turning.

Swiss media speculated at the weekend that UBS could unveil a fourth-quarter loss of 8 billion franc on February 10, lifting the total for last year to 20 billion francs.