June 26 (Bloomberg) -- UBS AG, the European bank with the biggest losses from the credit crisis, raised about 3.8 billion Swiss francs ($3.5 billion) by selling shares and said it expects a second-quarter loss.

The bank sold 293.3 million shares for 13 francs apiece to a “small number of institutional investors,” the Zurich-based company said in a statement late yesterday. UBS declined 5.4 percent in Swiss trading.

UBS decided to raise the funds following record losses, client defections and a U.S. probe into possible tax evasion by wealthy Americans. The company had further withdrawals from all of its money-management divisions in the second quarter, it said in the statement. The Swiss central bank said last week that UBS needs to further increase reserves and cut assets.

“When the regulator tells you to raise capital, you do it,” said Andy Lynch, who helps manage about $170 billion at Schroder Investment Management Ltd. in London and holds UBS shares. “The view was probably that markets are in a good shape for the time being, we don’t know how it’s going to look in September, so let’s take some insurance.”

UBS declined 75 cents to 13.22 francs. The stock fell 11 percent so far this year, compared with a 69 percent gain at Zurich-based Credit Suisse Group AG.

Banks Raise Cash

Oswald Gruebel, 65, joined UBS is February as chief executive officer to reorganize the bank and return it to profitability. The former CEO of Credit Suisse announced plans in April to cut 7,500 jobs and save as much as 4 billion francs by the end of next year.

UBS said the second-quarter loss is mostly tied to reorganization costs and charges on the company’s own debt, while operating earnings improved from the first quarter on better market conditions. The bank is scheduled to publish second-quarter earnings on Aug. 4.

The bank, the biggest manager of money for the wealthy, has been seeing outflows of client funds since the beginning of 2008, with customers withdrawing 240.9 billion francs through the end of March.

‘More Evidence’

“Investors need to see more evidence of a successful turnaround” before buying shares, Derek De Vries, a London- based analyst at Merrill Lynch & Co. who has a “neutral” rating on the stock, said in a note to clients. “We can’t be certain this will be the last capital increase at UBS.”

In the U.S., lenders including Bank of America Corp. and Wells Fargo & Co. have raised more than $75 billion by selling shares or converting preferred stock into common equity since early May, when regulators demanded some of the banks bolster their capital.

The Swiss National Bank said last week that UBS and Credit Suisse need to increase the amount of capital they hold in relation to assets to withstand any further losses. The banks should aim for a so-called leverage ratio of at least 5 percent once the crisis is over, the SNB said. UBS’s ratio was 2.56 percent at the end of March.

The capital increase “is in accord with our expectations and increases the financial robustness of the bank,” Nicolas Haymoz, a spokesman for the SNB, said today.

Capital Ratio Rises

UBS has amassed more than $53 billion in writedowns and losses since the credit crisis began and had to raise about $34 billion before this capital increase from investors including the Swiss government to replenish reserves.

UBS’s Tier 1 capital ratio, a gauge of its ability to absorb losses, will rise to more than 11.9 percent at the end of this month from 10.5 percent at the end of March because of the share sale and a reduction in risk-weighted assets, the bank said. An increase of about 0.5 percentage point through the sale of Brazil’s Pactual unit will probably come in the third quarter, it added.

UBS also said the Swiss government, which holds 6 billion francs in notes it can convert into UBS shares, agreed not to sell any stock without the bank’s consent before Aug. 4. The finance ministry said in a statement it welcomed UBS’s measures to strengthen capital and that this lock-up was aimed to help the share placement.

The government can still exchange its holdings for shares or sell the mandatory convertible notes before Aug. 4. The ministry will continue to evaluate market conditions as it considers how to exit its investment in UBS, it said.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.

Last Updated: June 26, 2009 11:59 EDT