Aug. 4 (Bloomberg) -- UBS AG, Switzerland’s largest bank by assets, will see further withdrawals by wealthy clients after reporting a third consecutive quarterly loss, Chief Executive Officer Oswald Gruebel said.

UBS fell 4.3 percent in Zurichtrading as Gruebel said a halt in redemptions at the wealth management unit will probably lag behind a financial turnaround at the bank. Customers withdrew a net 22.3 billion Swiss francs ($21 billion) in the second quarter, a fifth straight period of redemptions.

“In international net new money we’re unlikely to see a quick reversal of the trend,” Gruebel said at a press conference today in Zurich. Outflows may persist after UBS lost client advisers and as regulatory pressures reduce growth prospects for wealth management, he said. The market as a whole “will see less growth in European offshore private banking for the foreseeable future.”

Gruebel, who cut 7,500 jobs and sold a Brazilian unit since joining in February, said that while markets have improved, a sustainable economic recovery “is not yet visible.” The bank reported a net loss of 1.4 billion Swiss francs in the second quarter, wider than the 395 million-franc deficit a year earlier, on costs for job cuts and charges tied to an improvement in its own debt.

UBS declined 69 centimes to 15.31 francs in Zurich, giving up most of the gains made since the U.S. and Switzerland said last week they were near a settlement of a U.S. lawsuit seeking data on 52,000 UBS clients.

‘Huge Burden’

U.S. Justice Department attorney Stuart Gibson said in a telephone conference call with District Judge Alan Gold on July 31 that the U.S. and Switzerland “have reached an agreement in principle on the major issues” related to the lawsuit. Remaining points may be settled before Aug. 7, he said.

A settlement “is a huge burden off the share price,” said Andy Lynch, who helps manage about $170 billion at Schroder Investment Management Ltd. in London. Investors next want to see stabilization in net new money flows, Lynch said. “The story is a long way from being finished.”

The U.S. sued UBS on Feb. 19, seeking the clients’ names, a day after the bank agreed to pay $780 million to defer prosecution for helping wealthy Americans evade taxes. UBS agreed then to give the U.S. data on more than 250 accounts.

The IRS is seeking the additional names because it suspects American account holders of evading taxes. Switzerland called the case a threat to its sovereignty and said it would force UBS to violate criminal laws protecting bank secrecy.

Client Trust

“We look forward to a definitive resolution of the U.S. cross-border matter,” Gruebel, 65, and Chairman Kaspar Villiger, 68, said in a letter to shareholders. “This is a positive development in a matter that has adversely affected our efforts to regain the trust of our clients and restore momentum to our businesses.”

The bank didn’t make any additional provisions for litigation costs related to the U.S. lawsuit in the second quarter, Chief Financial Officer John Cryan told journalists on a conference call.

UBS said the second-quarter earnings included a 1.2 billion-franc charge related to the company’s own debt, 582 million francs in reorganization costs and a goodwill impairment of 492 million francs from the sale of Brazil’s UBS Pactual unit.

Third Quarter

The bank’s securities unit reported a pretax loss of 1.85 billion francs, compared with a loss of 5.24 billion francs a year ago. Earnings at the wealth management and Swiss bank halved to 932 million francs, while wealth management Americas had a pretax loss of 221 million francs, compared with a 748 million-franc deficit a year ago. Asset management profit dropped 77 percent to 82 million francs.

Excluding charges, operating earnings in the quarter showed “very encouraging signs,” Cryan said. “The general environment, which obviously in the second quarter of this year was more positive than for some quarters, seems to have continued into the third quarter.”

Before the second quarter, UBS had amassed $53.1 billion in writedowns and losses from the financial crisis and had to raise more than $38 billion to replenish capital from investors including the Swiss government, data compiled by Bloomberg show. The bank said in June it expected a loss for the second quarter.

Zurich-based Credit Suisse Group AG, which declined government aid, posted on July 23 its second consecutive quarterly profit, beating analysts’ estimates as revenue from trading doubled. BNP Paribas, France’s largest bank, reported today a 6.6 percent increase in second-quarter profit.

Wealth Management

UBS’s wealth-management units suffered 156.3 billion francs of net client withdrawals since the second quarter of last year. The number of advisers at the wealth management and Swiss bank unit, which oversees 961 billion francs in customer assets, fell by 855 over that period to 3,593. Client advisers at the Americas division, which manages 695 billion francs, declined by 752 to 7,939.

Asset outflows increased “slightly” at the European business in the quarter, while in Switzerland they stabilized and the Asia-Pacific region recorded net inflows, Gruebel said. “But this does not yet constitute the reversal of the trend,” he added.

As part of reorganization, the co-heads of the wealth management and Swiss bank unit, Franco Morra and Juerg Zeltner, said in a memo to staff that private banking in Switzerland will be combined with businesses for retail and corporate clients, asset management and investment-banking advisory in the country under Morra.

Capital

Wealth management in the U.S., where net new money outflows are expected to continue, is concentrating on clients with more assets, from $1 million, to differentiate itself from competitors, Gruebel said. “I strongly believe that it can be run very profitably and that’s what we’re trying to achieve.”

He declined to comment on reports that UBS is looking for a new head for the U.S. business, calling them “rumors.”

Gruebel has shaken up top management since taking over from Marcel Rohner, 44, in February. UBS appointed Chi-Won Yoon, 50, as chairman and CEO for Asia-Pacific in June, replacing Rory Tapner, 49. Gruebel in April hired former Credit Suisse colleague Ulrich Koerner, 46, as chief operating officer and named Alexander Wilmot-Sitwell, 48, and Carsten Kengeter, 42, co-heads of the investment bank, replacing Jerker Johansson, 53.

A recovery at UBS “will take time,” said Guy de Blonay, who helps manage about $70 billion at Henderson Global Investors Ltd. in London. “Gruebel has a good track record, and he is going to do everything that he can to position the company to match rival performance.”

UBS said its tier 1 capital ratio improved to 13.2 percent from 10.5 percent at the end of March after the bank cut more than 260 billion francs of assets on the balance sheet. Gruebel said he “cannot imagine why we would need additional capital.”

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

Last Updated: August 4, 2009 12:10 EDT