Feb. 10 (Bloomberg) -- UBS AG, Switzerland’s largest bank, plans to eliminate an additional 2,000 jobs at its securities unit and return to profit in 2009 after a record loss last year.

UBS rose 5.7 percent in Swiss trading after saying its wealth and asset management businesses recorded net increases in client investments in January, following 85.8 billion francs ($73.8 billion) in withdrawals last quarter.

Chief Executive Officer Marcel Rohner said UBS will return to profitability after getting a lifeline from the Swiss government to split off toxic assets. The world’s largest manager of money for the wealthy is scaling back risk at the investment bank and seeking to stem defections by rich clients after posting a fourth-quarter loss of 8.1 billion Swiss francs.

“January is a silver lining and so the turnaround looks quite impressive, but the challenge will be to retain that and prevent advisers from taking client assets with them,” said Christian Stark, an analyst at Credit Agricole Chevreux in Zurich who rates the stock “underperform.”

UBS rose 73 centimes to 13.63 francs, valuing the company at 40 billion francs. The stock has fallen 61 percent in the past 12 months, compared with the 63 percent decline in the Bloomberg Europe Banks and Financial Services Index in the same period.

Record Loss

The fourth-quarter net loss, which amounted to 2.55 francs a share, compares with a deficit of 13 billion francs, or 6.03 francs, in the year-earlier period, UBS said today. For the full- year, UBS had a loss of 19.7 billion francs, the most in the country’s history.

Global wealth management and business banking had pretax profit of 1.13 billion francs in the fourth quarter, down 54 percent from a year earlier. The investment bank recorded a loss of 7.5 billion francs, compared with a 16 billion-franc deficit in the year-ago period. Earnings before tax at the asset management unit fell 51 percent to 236 million francs.

While UBS had an “encouraging start” to the year, financial markets remain “fragile” as companies and households grapple with a worsening economy, the bank said. It plans to continue to “strengthen its financial position through reductions in risk positions, risk-weighted assets, total assets and operating costs,” UBS said.

Fundable and Profitable

UBS eliminated 1,782 jobs during the fourth quarter, with most of the reductions affecting the investment bank. The company intends to lower headcount at the securities unit to 15,000 this year, after previously saying it would reduce staffing to 17,000.

“Our business must be manageable, it must be fundable, and it must be profitable,” said Jerker Johansson, the CEO of the investment bank, on a call with analysts today. “The hard work in terms of headcount reduction will now be behind us. 15,000 is the right staffing level for our new investment bank.”

Chairman Peter Kurer pledged UBS’s “full commitment” to the investment bank, following speculation it might dismantle the unit or replace Johansson.

The absence of bigger job cuts or management changes “will disappoint many who felt that UBS is not addressing its problems with enough speed and decisiveness,” Peter Thorne, an analyst at Helvea, said in a note to clients today.

Toxic Assets

UBS, which was planning to spin off as much as $57.2 billion in toxic assets to the Swiss central bank as part of the state aid package, said today it will limit the transfer to $39.1 billion. It will keep student loan auction-rate securities and risks tied to bond insurers on its books.

That makes the bank “less clean than originally expected,” JPMorgan Chase & Co. analyst Kian Abouhossein said in a note.

The bank had already announced 9,000 job cuts, exited parts of its debt trading and commodities businesses and raised $32 billion from investors to offset record losses at the securities unit. Clients at UBS’s wealth management units removed more than 140 billion francs in the first nine months of 2008.

Financial institutions worldwide have amassed $1.09 trillion of losses and shed almost 270,000 jobs since the U.S. subprime mortgage market collapsed, data compiled by Bloomberg show. The U.S., Britain, France and Germany are among nations that injected billions into banks to prevent a wider financial calamity following the September collapse of Lehman Brothers Holdings Inc.

Deutsche, Credit Suisse

Deutsche Bank AG, Germany’s biggest bank, reported last week a record 4.8 billion-euro ($6.3 billion) net loss for the fourth quarter and its first annual deficit in more than 50 years. Credit Suisse Group AG, the second-biggest Swiss bank, may say tomorrow its fourth-quarter loss amounted to 4.2 billion francs, according to the median estimate of 11 analysts.

Kurer, 59, told investors in Zurich last month that the recovery of UBS’s reputation and a settlement of a probe into whether the bank helped 20,000 wealthy clients avoid American taxes are two priorities for this year.

Rohner, 44, said today that UBS is working “diligently” to achieve a “mutually satisfactory solution” to the tax probe.

UBS is reorganizing its wealth management business to separate the Americas unit, which will still be an “integral part” of the company, Rohner said. Franco Morra and Juerg Zeltner, both 41, were picked to run the newly formed wealth management and Swiss banking division, while Marten Hoekstra, 47, will head the Americas unit.

Hiring Brokers

UBS hired about 400 brokers in the U.S. in the fourth quarter, resulting in a 4.1 billion-franc net increase in client money at that division. The bank lured financial advisers from rivals by offering signing bonuses of as much as 260 percent of the revenue they brought in over the previous 12 months, two people with knowledge of the matter said last week.

Management is caught between pressure from shareholders to cut costs and discontent among employees facing a reduction in bonuses, according to analysts. UBS said it cut the 2008 bonuses for staff, excluding U.S. brokers, by 78 percent to 2.16 billion francs, with the global wealth management and business banking unit receiving 60 percent of that pool.

A pretax profit goal of 4 billion francs at the investment bank, set last May by Johansson, probably won’t be reached this year or even next, according to analysts’ estimates.

Rohner said the target remains valid for a “normalized” market environment. “Clearly now the environment is not normalized, it’s the worst environment you can imagine for investment banking,” he said. “It may be three or four years to get back to that level of profitability with the businesses we have.”

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

Last Updated: February 10, 2009 12:00 EST