UBS wealth management division may take $21bn hit

Swiss banking giant UBS will announce its second quarter results tomorrow and all eyes will be on the sub-prime-scarred lender's key wealth management division which has seen customers take their business elsewhere over the past twelve months, analysts said.

Zuercher Kantonalbank analysts expect the division to be down 23 billion Swiss francs ($21bn, Dh78.5bn) in the quarter, following on from the 12.8bn Swiss francs withdrawn in the first three months of the year. Helvea analyst Peter Thorne said it will be "interesting to see if this trend continues" in the next quarter, which could prove highly ominous for the bank's overall reputation. Just a year ago, UBS was practically a byword for safe, reliable and trustworthy investments.

But the past twelve turbulent months have seen its shares lose 66 per cent of their value, and its market capitalisation halve to $45.3bn from nearly $90bn.

The bank now ranks 25th in the world in terms of market cap, but has the dubious distinction of being in the top three – behind US peers Citigroup and Merrill Lynch – in terms of share devaluation. Nearly a year to the day after it first revealed it had some exposure to the crisis in the US housing mortgage sector – and after posting write-downs worth a phenomenal $37bn – UBS will attempt to assure investors the worst is finally behind it. The results will be sweetened somewhat by an unexpected three billion Swiss francs in tax credits, with analysts expecting results to be either flat or slightly negative, after three consecutive quarters deep in the red.

The tax credit will offset a further wave of write-downs expected between $4.7-$5.6bn. UBS has attempted to undergo "shock therapy" to turn around its fortunes, hiving off part of its troubled investment banking arm, and cutting around 5,500 jobs. The most striking symbol of the bank's bid to turn the page was the resignation of veteran chairman Marcel Ospel on April 1, and his replacement by in-house lawyer Peter Kurer.

UBS also turned to foreign investors to shore up its balance sheet, notably Singapore's state investment fund GIC which is now the bank's biggest shareholder. But the bank's woes are far from behind it, and certainly not in the key American market.

Just on Friday, UBS agreed to buy back $18.6bn worth of stressed securities in a deal with US authorities. UBS said it would endure a pre-tax charge of around $900 million related to its settlement. Analysts say other banks are also likely to undergo financial hits from the buybacks.

US banks and UBS marketed billions of dollars' worth of the complex securities in recent years, but the market for auction rate securities (ARS) imploded in February amid a broadening credit crunch that contributed to the collapse of the US bank Bear Stearns in March.