Nov. 4 (Bloomberg) -- UBS AG, the European bank with the biggest losses from the global credit crisis, said ``difficult'' market conditions will further drag on the fees it earns from managing money for wealthy customers.

``Since the beginning of the fourth quarter, we have seen many difficult conditions across equity, credit and money markets worldwide,'' Zurich-based UBS said in a statement today. ``We expect that such conditions will continue to affect our clients' assets, and therefore our fee-earning businesses.''

UBS, led by Chief Executive Officer Marcel Rohner, agreed last month to a $59.2 billion aid package from the government and central bank that will split off risky assets. Switzerland's largest bank is seeking to restore investor confidence and halt client redemptions, which amounted to 83.6 billion Swiss francs ($71 billion) at its money-management units in the third quarter.

The plan to ``firewall toxic assets was an attempt to reassure investors that UBS is a sensible place to park their personal assets,'' Dirk Hoffmann-Becking, an analyst at Sanford Bernstein & Co., said in a note. ``We think restoring confidence to clients could be a slow and arduous process taking place over a period of years.''

UBS rose 75 centimes, or 4 percent, to 19.70 francs in Swiss trading, while the 69-company Bloomberg Europe Banks and Financial Services Index gained 5.9 percent. UBS is down 58 percent this year, more than the 36 percent decline of smaller rival Credit Suisse Group AG over the same period.

SNB Fund

The Zurich-based bank reiterated today that net income totaled 296 million francs in the third quarter, buoyed by 2.2 billion francs of gains on its own debt and a tax credit. In the fourth quarter, the bank will probably have a loss because of a reversal of gains on its debt and a charge related to the transfer of risky assets.

``Yes, it is irritating that there is another quarter of losses,'' Chief Financial Officer John Cryan said in an interview. ``But then after that, there isn't really a very good reason that we can see today why we shouldn't be profitable again next year.''

UBS plans to transfer as much as $60 billion of debt assets to a fund backed by the Swiss National Bank, leaving it with ``essentially zero'' risk related to U.S. subprime, Alt-A, prime, commercial real estate and mortgage-backed securities, as well as student loan-backed securities and reference-linked notes, Rohner said last month. Risky assets have led to $48.6 billion of losses and writedowns at UBS since the start of last year.

`Hard-Pressed'

The Swiss government agreed to buy 6 billion francs in bonds that will convert into UBS shares to support the fund, and said it stands ready to raise deposit guarantees and back interbank loans of the nation's banks after countries across Europe took similar measures. The state will have a 9.3 percent stake in UBS after the securities are converted into stock.

``Until the economy turns around, UBS is going to be hard- pressed to recover,'' Ralph Silva, research director at Tower Group Plc in London, said. ``If UBS is getting no new business, there is no way it can rebuild its balance sheet.''

Since the rescue plan was announced, there have been ``encouraging signs'' for net new money flows, Cryan told reporters on a conference call today.

Even so, clients may keep removing funds for some time as part of a ``general trend of deleveraging,'' he said. ``That manifests itself in clients effectively selling investments and withdrawing proceeds to pay down debt.''

Job Cuts

The gross margin that UBS earns on invested assets at its wealth management international and Switzerland unit fell to 95 basis points in the third quarter from 103 basis points a year ago. Cryan said the bank expects that ``gross margins will come under pressure in the coming quarters,'' as clients shift assets and do fewer transactions. A basis point is a hundredth of a percentage point.

Profit at the wealth management and business banking unit fell 21 percent to 1.86 billion francs, while the asset management unit's profit rose 13 percent to 415 million francs on a gain of 168 million francs from sale of a stake in Adam Street Partners LLC.

Credit Suisse, which declined to participate in the SNB- backed fund, last week reported a third-quarter loss of 1.26 billion francs, hurt by writedowns and trading losses. Credit Suisse's private bank attracted 14.5 billion francs of net new money in the quarter.

UBS said its investment bank had a pretax loss of 2.75 billion francs in the third quarter after writedowns of $4.4 billion. Rohner announced plans last month to cut an additional 2,000 jobs at the securities unit, including about 700 in the U.S., about 450 in the U.K. and some 120 in Switzerland.

No Bonuses

Rohner, 44, his 11 colleagues on the executive board and Chairman Peter Kurer, 59, won't receive any bonuses for this year, the bank said on Nov. 2. UBS plans to publish a revised compensation policy on Nov. 14. Departed executives including Chairman Marcel Ospel have faced calls from politicians and the media to return part of their compensation.

UBS will take a charge of about 4 billion francs in the fourth quarter from the transfer of assets to the SNB fund. A tightening of UBS credit spreads would result in a charge of about 2 billion francs at current levels, Cryan said.

The bank expects to reach an agreement with banking regulators on the capital targets ``soon'' and plans to work toward satisfying them by further shrinking the balance sheet and retaining earnings, he said.

UBS also said that Philip Lofts has been named group chief risk officer, replacing Joseph Scoby, who has decided to return to his former role as global head of alternative and quantitative investments within the asset management unit.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

Last Updated: November 4, 2008 11:48 EST