ZURICH: UBS AG, the European bank with the biggest losses from the credit crisis, said withdrawals by wealthy clients accelerated in the fourth quarter, even as the company reported its first profit in more than a year.

The bank fell as much as 4.3% in Swiss trading after saying redemptions at its wealth management units increased to 45.2 billion francs ($42.3 billion) from 26.6 billion francs in the previous three months. Analysts surveyed by Bloomberg had forecast 17.5 billion francs in outflows.

UBS, based in Zurich, earned 1.21 billion francs in the fourth quarter, its first profit since the third quarter of 2008, buoyed by gains at the investment bank, lower costs tied to the company’s debt and a tax credit. Chief Executive Officer Oswald Gruebel predicted in a statement today that the return to profitability “will increase clients’ confidence in UBS.”

“All divisions are profitable, and now UBS needs to work on its image and reputation so that clients’ withdrawals reverse,” said Teresa Nielsen, an analyst at Vontobel Holding AG in Zurich who has a “buy” rating on UBS. “It takes time.”

UBS shares fell 30 centimes, or 2.1%, to 13.86 francs by 9:22 a.m. in Zurich. They have fallen 14% so far this year, compared with an 11% decline in the 52- company Bloomberg Europe Banks and Financial Services Index. Credit Suisse Group AG fell 13%.

Higher Bonuses

UBS will pay out 2.9 billion francs in bonuses for 2009, Andreas Kern, a spokesman for the Zurich-based bank, said by phone today. That compares with a 2008 payout of 2.16 billion francs in variable pay to staff, excluding US brokers.

Gruebel, who isn’t getting a bonus, vowed to stick to a policy of paying market-level compensation since joining the bank almost a year ago. UBS last year boosted salaries for senior bankers at its securities unit by an average of 50% to increase the ratio of fixed pay.

UBS slashed 2008 bonuses 78% after a net loss of 21.3 billion francs, a record in Swiss corporate history, and a 6 billion-franc lifeline from the Swiss government to help it spin off toxic assets into a central bank fund.

2010 Profit

UBS may report its first annual profit since 2006 this year after spinning off $38.7 billion in assets into the central bank fund, cutting 18,500 jobs and appointing 11 new managers to the executive board. Gruebel, who has led UBS for almost a year, is relying on a recovery at the investment bank to help increase pretax earnings to 15 billion francs in three to five years.

Gruebel has said a return to profitability may help UBS stop withdrawals by wealthy clients, who removed a net 228.1 billion francs over the 21 months through December. The bank predicted today that withdrawals will continue in the “immediate future.”

The wealth management and Swiss bank unit’s pretax profit more than doubled to 1.11 billion francs in the quarter as a charge to settle the US cross-border case wasn’t repeated. Wealth management Americas had a profit of 178 million francs, compared with a loss of 444 million francs a year ago.

The investment bank posted pretax profit of 297 million francs, its first since the second quarter of 2007, as charges on UBS’s own debt fell to 24 million francs from 1.62 billion francs a year ago. Analysts had forecast charges of about 750 million francs. Earnings in asset management rose 20% to 284 million francs.