Back in the black but doubts remain

UBS might have hauled itself back into the black, but it is not out of the woods yet. It was primarily a reduction in costs that helped the firm post a profit, rather than a dramatic recovery in the top line. It managed to keep staffing costs low by doling out variable pay in shares, which will vest in around five years. Similarly, the efficiency programme, which aims to reduce annual costs to SFr20bn by the end of 2010, is well ahead of target.

Revenues at its investment banking unit were disappointing, however, falling by 23 per cent on the previous three months (if you strip out its own credit charges of SFr24m). Within investment banking, capital markets revenues – which have been helping rivals recover – fell by 12 per cent.

Unless UBS can start to take on the Goldmans of this world, it’s hard to see where its future lies. It is certainly not in wealth management, if the fourth quarter’s disastrous outflows are anything to go by. The amount of cash being pulled out by jittery clients doubled to SFr33.2bn compared to the third quarter. Investors would be wise to sell.