Grübel isn’t out of the woods just yet

THE three keys that make up the UBS logo symbolise confidence, security and discretion. Investors and clients could be forgiven for thinking it needs to be redesigned. Battered by huge writedowns in the financial crisis and a flight of wealth management clients in the wake of a massive American tax evasion probe, the Swiss bank has a lot of humble pie to eat.

Instead, it will ask shareholders at tomorrow’s annual meeting to support a motion that absolves former management of responsibility for the £50bn writedown it took at the height of the crisis. Unsurprisingly, shareholder and advocacy groups like ISS/RiskMetrics are urging investors to vote down the board.

It was the impending shareholder revolt that convinced chief executive Oswald Grübel to rush out the news that UBS booked a much better than expected SwFr2.5bn (£1.53bn) profit in the first quarter. Ironically, the fixed income unit that was responsible for the charges it took during the crisis is now the star of the show. More importantly, it managed to stop the rot at its wealth management unit, dramatically reducing outflows from SwFr33bn in the final quarter of 2009 to SwFr8bn.

That UBS is in better health is good for the industry as a whole, but investors shouldn’t get carried away: the first quarter is always a strong one for investment banks. And there are still several considerable obstacles in the distance. UBS, along with Credit Suisse, will struggle to become more profitable in the future due to the Swiss National Bank’s capital requirements, which are tougher than everyone else’s. And its pension deficit at SwFr4.5bn is huge. UBS climbed three per cent to close at SwFr18.23 yesterday. This news alone shouldn’t push its shares any higher.