UBS in the Black, but Challenges Still Loom

Posted Feb 9th 2010 1:40PM by Tom Taulli
Filed under: Earnings Reports, Management

UBS (UBS) was one of the hardest hit from the financial crisis, but the company is showing signs of stabilization. In the latest quarterly report, the firm posted profits of $1.3 billion. Actually, it was the first reported profit in a year.

Of course, the cost-cutting was a big help (roughly 16% of the workforce). But there was also a nice tax credit during the quarter.

The company's new CEO, Oswald Grübel, definitely understands how to turnaround financial institutions. After all, he had considerable success at Credit Suisse (CS).

However, Grübel still faces tough challenges. Bear in mind that clients continue to take their assets elsewhere, especially from the private banking division. In the quarter, the outflows amounted to $31 billion. This was roughly 3.4% of assets under management.

Why? A key reason is the U.S. crackdown on off-shore tax shelters. Because of this, UBS released confidential information on thousands of U.S. clients.

So, if the capital outflows continue, the long-term earnings potential of UBS will be muted. However, it will take time to regain trust with clients and the firm still does not have a clear-cut strategy on how to deal with the situation.

In morning trading, the shares of UBS were down 1% to $12.72.

Tom Taulli advises on business tax preparation and resolving tax problems. He is also the author of a variety of books, including The Complete M&A Handbook. His website is at Taulli.com.

Tags: Credit Suisse, CS, earnings, inthenews, Oswald Grübel, UBS