UBS Posts $1.3 Billion Quarterly Loss

UBS posted a $1.3 billion quarterly loss on Tuesday, the third in a row for Switzerland’s biggest bank, and blamed costs linked to its reorganization program.

The loss widened to 1.4 billion Swiss francs in the second quarter from 395 million francs in the same period a year earlier. The company cited costs related to job cuts and charges to improve the bank’s debt position, and it said clients continued to withdraw money from its wealth management units even though the rate of net outflows slowed from the first quarter.

The bank gave a bleak outlook, saying that a sustainable economic “recovery is not yet visible.”

“Our outlook remains cautious, consistent with our view that economic recovery will be constrained by low credit creation and the structural weaknesses in consumers’ and governments’ balance sheets,” the bank said in a statement.

Oswald Grübel , the bank’s chief executive, has cut about 7,500 jobs, reduced risk-weighted assets and sold a unit in Brazil in an effort to return the company to profitability. Credit Suisse and other UBS rivals have recently reported higher earnings as strong performances of their investment banking units outweighed rising bad loans at their retail operations. At UBS, the investment banking business had a pretax loss of 1.85 billion francs, down from 5.24 billion francs a year ago.

Mr. Grübel is looking to streamline operations and repair the bank’s reputation, which was damaged by its exposure to products linked to the subprime mortgage market and a legal dispute in the United States.

UBS remains embroiled in a legal battle with the U.S. government over demands that it release the names of thousands of its clients. The bank already settled some aspects of the lawsuit, which is linked to claims that UBS helped wealthy clients evade U.S. taxes. The company has said it plans to resolve the rest to repair its reputation.

UBS, which relied on $5.5 billion government aid to improve its capital base, said net outflows at its wealth management and Swiss bank unit were 16.5 billion francs, mainly from clients outside Switzerland, compared to 23.4 billion francs in the first quarter. Wealth Management Americas lost 5.8 billion francs, down from 16.2 billion francs in the first quarter.

The bank took a charge of 1.2 billion francs on its own debt and paid 582 million francs in reorganizing costs. It also booked a goodwill impairment of 492 million francs related to the sale of UBS Pactual in Brazil.

Earnings at the wealth management and Swiss bank unit halved while the pretax loss at its wealth management Americas unit was reduced to about a third. Earnings in the asset management unit dropped 77 percent.

Northern Rock, the British lender that was bailed out by the government after a run on the bank, also presented a bleak outlook on the economy on Tuesday and continues to struggle to get bad loans under control. The bank, which is now owned by the British government, said its net loss widened to £770.9 million, or $1.3 billion, in the first half from £592 million a year earlier.

Late payments on mortgages rose to 3.9 percent of mortgages in the first half, higher than the national average.

Royal Bank of Scotland and Lloyds Banking Group, two British lenders that also count the government among their major shareholders, are also due to report earnings figures this week. Some analysts expect they too will say that more clients are struggling to repay debt as unemployment rises and house prices fall.