UBS saw weak client inflows at its flagship private bank in the fourth quarter as it reported a hefty net loss due to a $1.5 billion fine for rigging benchmark interest rates and restructuring costs.
Switzerland's biggest bank announced plans in October to fire 10,000 staff as it focuses on wealth management and ditches much of the trading business that ran up $50 billion in losses in the financial crisis and prompted the rate rigging fine.
But the wealth management business that is now the key to its future success only delivered 2.4 billion francs in fresh client money -- a key bellwether for future revenue -- clearly missing average analyst forecasts for 6.8 billion francs.
While inflows in fast-growing markets like Asia were healthy, withdrawals by clients in western Europe - where Switzerland is under fire for helping tax cheats - sped up towards the end of the quarter, UBS said.
Chief financial officer Tom Naratil said Germany's rejection mid-December of a tax deal with Switzerland had contributed to the outflows.
However, the wealth management Americas business saw net new money of $8.8 billion, its highest rate of fourth-quarter inflows since 2007 and double analyst forecasts.
"Despite the lack of progress on certain bilateral tax treaties, we remain confident that our asset-gathering businesses as a whole will continue to attract net new money," UBS said in its outlook statement.
UBS has warned it could lose 12-30 billion Swiss francs from total European assets under management of over 300 billion as a result of steps to stop foreigners using secret accounts to evade taxes.
Cutting Risk, Bonuses
UBS reported a 1.89 billion franc loss in the fourth quarter largely due to the fine it agreed in December for rigging Libor and other benchmark interest rates and charges from its restructuring plan to shed 10,000 staff.
The loss compares with a 2.078 billion franc net loss forecasts by analysts in a Reuters poll.
Bank Sarasin said the overall result is good because the net loss is narrower than expected, though the private bank's weakness in collecting new money is a drawback.
UBS said it will buy back 5 billion Swiss francs in senior debt in coming weeks, after the scaleback at its investment bank dramatically reduced liquidity and funding needs.
But it said the move to buy back the euro, Italian lira and U.S. dollar denominated debt could lead to a tightening of its credit spreads, and as a result could incur "significant" first-quarter own credit charges.
Like most global banking rivals, UBS is seeking to reduce its risky assets in a bid to meet tougher regulations aimed at preventing a repeat of the 2008 financial crisis.
UBS is nearing its goal faster than expected by analysts, lowering risk-weighted assets (RWAs) to 258 billion francs in the quarter, nearing the target of 200 billion francs it set for 2017. RWAs stood at 301 billion at the end of the third quarter.
UBS said it was cutting its bonus pool for 2012 by 7 percent to 2.5 billion francs and introducing a scheme to pay bankers with loss-absorbing capital which are revoked if capital targets are not met. It issued roughly 500 million francs in those instruments in the fourth quarter.
Deutsche Bank is capping bonus payouts for 2012 at 300,000 euros for employees, not including deferred pay, sources told Reuters on Friday.
UBS's hometown rival Credit Suisse, where investment banking makes a larger share of profits, is pursuing a very different strategy. Credit Suisse is holding fast to its securities unit, even as it adapts to tough capital rules that make it harder to turn a profit from trading.
Credit Suisse reports quarterly results on Thursday.
So far, investors have shown a preference for Credit Suisse's stance, sending its stock 23 percent higher since November, when UBS unveiled its strategy. UBS's shares, meantime, have gained 15 percent, only just outpacing a 13.5 percent rise in the Stoxx 600 European bank index.