UBS expects profitable quarter after paring mortgage holdings

Pedestrians pass a UBS branch in Switzerland. UBS's stock has fallen 54 percent this year. (Adrian Moser/Bloomberg News)

GENEVA - UBS AG, the largest Swiss bank, had its first profitable quarter in more than a year and said it decreased holdings of mortgage securities to limit losses from the worst US housing slump since the Great Depression.

UBS said it expects a "small profit" for the third quarter. The Zurich-based bank said yesterday that it "substantially reduced its US commercial and residential mortgage-related positions" and forecast 2009 will be a profitable year.

Chief executive Marcel Rohner and chairman Peter Kurer are under pressure to halt redemptions by wealthy clients and stem share price declines following $44.2 billion of debt write-downs. Kurer told shareholders yesterday that he plans to further reduce the bank's assets, headcount, and risk-taking after curtailing predecessor Marcel Ospel's decade-long expansion into investment banking.

"The fact that they've made significant reductions in their positions is a positive, though they said nothing about outflows of client money," said Andreas Venditti, a Zuercher Kantonalbank analyst with a "market weight" rating on UBS. "This will calm people. The crisis isn't over for UBS, but some banks are clearly a little further through the curve, and UBS is in this camp."

The stock has declined 54 percent this year, cutting the bank's market value to $55.1 billion, after a wrong-way bet on the US mortgage market forced the bank to raise more than $27 billion in capital.

UBS will publish its full earnings report on Nov. 4.

The world's biggest money manager for the rich, UBS disclosed plans in August to split its investment banking unit from wealth management after private-banking clients withdrew more funds than they added for the first time in almost eight years in the second quarter.

UBS, which set a target of cutting the investment bank's balance sheet to $1.54 trillion by year-end, reached that goal ahead of schedule and plans to bring assets down more, said Kurer.

He also said more jobs will be lost. The bank plans to eliminate about 1,900 jobs in UBS's investment banking, equities, and fixed income units, two people with knowledge of the matter said this week, adding to 7,000 reductions already disclosed. UBS had 81,452 employees at the end of June.