Oct. 2 (Bloomberg) -- 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 U.S. housing slump since the Great Depression.

UBS rose 8.1 percent in Swiss trading after saying it expects a ``small profit'' for the third quarter. The Zurich- based bank said in a statement today it ``substantially reduced its U.S. commercial and residential mortgage-related positions'' and forecast 2009 will be a profitable year.

Chief Executive Officer 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 writedowns. Kurer told shareholders at a meeting today that he plans to further reduce the bank's assets, headcount and risk- taking after curtailing former 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.''

UBS shares gained 1.60 francs to 21.30 francs. The stock has declined 54 percent this year, cutting the bank's market value to 62.5 billion francs ($55.1 billion), after a wrong-way bet on the U.S. mortgage market forced the bank to raise more than $27 billion in capital.

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

`Turning Point'

UBS, the world's biggest money manager for the rich, announced 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.

Kurer, 59, said today UBS will further reduce risk. UBS, which set a target of cutting the investment bank's balance sheet to 1.75 trillion francs by the end of the year, reached that goal ahead of schedule and plans to bring assets down more, he said.

Kurer also said more jobs will be lost, without providing details. 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 announced. UBS had 81,452 employees at the end of June.

``We regard this as a turning point for UBS, in terms of market perception, but also in terms of client perception,'' said Deutsche Bank AG analyst Matt Spick in a note today. He upgraded UBS to a ``buy.''

Bailout Plan

The credit crisis that began last year with the collapse of the U.S. subprime mortgage market deepened in September with the bankruptcies of New York-based Lehman Brothers Holdings Inc. and Washington Mutual Inc. of Seattle. Worsening financial markets in Europe spurred governments from Iceland to Belgium to France to step in and assist ailing banks.

Fortis, Dexia SA, Hypo Real Estate Holding AG, Glitnir Banki HF, and Bradford & Bingley Plc were all forced into government rescues this week.

In the U.S., the Senate yesterday passed a $700 billion package to help the financial industry. The U.S. House of Representatives, which rejected an earlier version of the bill, will consider the revised plan. The legislation authorizes the U.S. government to buy troubled assets from financial institutions rocked by record home foreclosures.

`Direct Impact'

``We support the plan, it's very important for Wall Street and UBS,'' Kurer said in a television interview from Basel, Switzerland. ``UBS has about 40 percent of our business in the U.S. so I think it will have a direct impact,'' he said.

The bank and its smaller Zurich-based rival Credit Suisse Group AG are also using Lehman's Sept. 15 bankruptcy to build up their investment advisory staff.

UBS last week hired 26 Lehman Brothers investment advisers, who together manage about $10.9 billion in client assets from offices in New York, Los Angeles and San Francisco.

UBS shareholders elected to the board today Sally Bott, BP Plc's group human resources director, Rainer-Marc Frey, founder and chairman of Horizon21, Bruno Gehrig, chairman of Swiss Life Holding AG and William G. Parrett, former CEO of Deloitte Touche Tohmatsu.

Kurer said the bank would pay a dividend in 2010 as long as the bank returns to profit next year.

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net

Last Updated: October 2, 2008 12:27 EDT