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Zurich and Credit Suisse profit, as UBS loses

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  • Zurich and Credit Suisse profit, as UBS loses

SWITZERLAND - Swiss banks Zurich and Credit Suisse (CS) reported positive net results in their overall operations in 2007, despite drops in the performances of their investment banking and asset management operations, but UBS saw institutional investors shun its fund.

Zurich Financial Services Group reported net income of $5.6bn (€3.8bn) for the full year - up 22% compared to 2006 - while the group saw its assets under management grow from $185bn to $191.8bn at December 31, 2007.

Its investment unit grew its return by 0.2 percentage points to 5.3% "supported by rising interest rates, higher dividend income and the growth in the average asset base compared to the prior year".

Zurich noted it "continues to have no material exposure to US sub-prime debt in its investment portfolio and incurred only few asset rating downgrades and impairments since end of September 2007".

"We may be operating in a difficult market environment, but the strength of our balance sheet, the diversity of our risk portfolio and our ability to execute on our strategy delivered excellent results in 2007, and make us confident in our ability to continue driving success going forward," remarked Zurich's chief executive James Schiro.

At Credit Suisse, net income from continuing operations was up 3% to CHF8.5bn (€5.3bn), with private banking mainly accounting for the profit.

Assets under management for the whole group appreciated slightly from CHF1.48trn to CHF1.55trn with net new assets more than halving to CHF50bn.

The asset management business contributed to net new asset outflows with CHF24.9bn, driven mainly by outflows in money market assets of CHF27.9bn.

Last year "short-term fixed income markets in particular remained challenging, resulting in significant valuation reductions from securities purchased from our money market funds," CS explained in a statement.

Net revenues in the asset management business were down 10% to CHF2.5m, mainly because of these reductions.

Without the reductions, net revenue would have been up 22% to CHF3.4bn, the bank argued.

UBS confirmed losses attributable to shareholders of CHF4.4,m as announced in January, as well as fourth quarter losses of CHF12.4m, which were mainly down to losses from US mortgage-related positions.

In the fourth quarter alone, global asset management saw net outflows of CHF15.7bn compared with inflows of CHF37.2bn the year before - mainly attributable to institutional investors.

"We were disappointed by net new money outflows in the institutional business," Marcel Ospel, chairman of the bank and Marcel Rohner, chief executive, noted in a joint letter to shareholders. 

"Past weak investment performance in some capabilities - notably core/value equities and fixed income - is at the root of this development. Over the last year, we have taken steps to address these  issues by reorganizing our equities business. In addition, we have made changes to the management in these areas,  focused on recruiting high-performing personnel, and added new investment capabilities."

The bank noted the global asset management part of the business "did not fully meet its 2006 pre-tax profit" but "results would have been a record excluding the costs for the closure of Dillon Read Capital Management".

UBS had to shut down its in-house hedge fund venture early in 2007 following severe losses which also led to the replacement of chief executive Peter Wuffli. (See earlier IPE story: CEO departure leaves UBS rating stable)

Problems were also encountered in the investment banking section of the business with losses incurred amounting to CHF15bn.

Yesterday, the bank announced it has appointed a new CEO for the investment bank, the Swede Jerker Johansson.

He joins UBS after 22 years at Morgan Stanley where he left as Vice Chairman Europe after previously having held the position head of institutional equity division and co-head of the combined equity and fixed income sales and trading business.

He succeeded Huw Jenkins at UBS who was dismissed from this position last October following substantial losses suffered in the US subprime crises. (See IPE story: UBS changes top team and cuts 1500 jobs)

Meanwhile, Standard & Poor's has upgraded Caisse Centrale de Réescompte (CCR) from 'A/A-1' to 'AA-/A-1' following the takeover by UBS.

"In light of the forthcoming integration of CCR into UBS, Standard & Poor's deems CCR to be a strategically important entity within the group, and therefore gives the long-term rating a four-notch uplift for potential parental support," the rating agency noted.

At the same time, the analysts noted with the acquisition "UBS solidifies its position in asset management in France, which represents a key strategic market."

CCR will also help the Swiss bank to widen its fund management product range in particular with its "recognizable brand in value-style equity funds and a more recently developed expertise in high alpha-enhanced cash and total return funds". (See earlier IPE coverage: UBS completes French push)

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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