Bloomberg

UBS AG, the European bank with the biggest losses from the global credit crisis, had its first profit in more than a year in the third quarter after reducing holdings of mortgage-related securities.

``UBS currently expects to report a small profit,'' the Zurich-based bank said in a Business Wire statement today, without elaborating. The company, which ``substantially reduced its U.S. commercial and residential mortgage-related positions,'' forecast 2009 will be a profitable year.

Chief Executive Officer Marcel Rohner and Chairman Peter Kurer, under pressure to halt redemptions by wealthy clients and record share price declines, will brief shareholders today on plans to overhaul the board after abandoning predecessor Marcel Ospel's decade-long expansion into investment banking.

``There aren't many banks in such difficulties that can more or less break even,'' said Peter Thorne, an analyst at Helvea in London who has an ``accumulate'' rating on the stock, before the announcement. ``But the market just looks at reputation at the moment, not the numbers.''

UBS has declined 58 percent this year in Swiss trading, cutting its market value to 57.8 billion francs, after a wrong- way bet on the U.S. mortgage market led to more than $44 billion of asset markdowns since the start of 2007 and forced the bank to raise almost $28 billion in capital.

UBS will publish its full earnings report on Nov. 4.

`Repositioning Risk'

UBS, the world's biggest money manager for the rich, announced plans in August to split its investment banking unit from wealth management after private-banking clients withdrew more funds than they added for the first time in almost eight years in the second quarter.

Kurer, 59, aims to shrink the investment bank's balance sheet to 1.75 trillion francs by the end of the year. He also plans to eliminate about 1,900 jobs in UBS's investment banking, equities and fixed income units, two people with knowledge of the matter said, adding to 7,000 reductions already announced. UBS had 81,452 employees at the end of June.

``On the investment banking side, staffing and balance sheet reductions will be two key indicators of how they're repositioning risk,'' said Christian Stark, an analyst at Credit Agricole Cheuvreux in Zurich. ``There's not much else you can do in the current environment but downsize.''

Bailout Plan

The credit crisis that began last year with the collapse of the U.S. subprime mortgage market deepened in September with the bankruptcies of New York-based Lehman Brothers Holdings Inc. and Washington Mutual Inc. of Seattle. Worsening financial markets in Europe spurred governments from Iceland to Belgium to France to step in and assist ailing banks.

Fortis, Dexia SA, Hypo Real Estate Holding AG, Glitnir Banki HF, and Bradford & Bingley Plc were all forced into government rescues, while the U.S. Senate yesterday passed a $700 billion package to help the financial industry. The U.S. House of Representatives, which rejected an earlier version of the bill, will consider the revised plan.

UBS may benefit from such a bailout, Bank Sal Oppenheim analyst Javier Lodeiro wrote in a note to investors this week.

The bank and its smaller Zurich-based rival Credit Suisse Group AG are also using Lehman's Sept. 15 bankruptcy to build up their investment advisory staff.

UBS last week hired 26 Lehman Brothers Holdings Inc. investment advisers, who together manage about $10.9 billion in client assets from offices in New York, Los Angeles and San Francisco.

Kurer, the company's former general counsel who has vowed to increase financial expertise on UBS's board of directors, will ask shareholders today to elect Sally Bott, BP Plc's group human resources director, Rainer-Marc Frey, founder and chairman of Horizon21, Bruno Gehrig, chairman of Swiss Life Holding AG and William G. Parrett, former CEO of Deloitte Touche Tohmatsu.