UBS expects to win more client funds for its wealth management business in 2011 and sees a rebound in the investment banking division whose losses almost felled it in the financial crisis.

Switzerland's biggest bank said it had seen improvement across all its businesses in the fourth quarter -- with total net new money of 7.1 billion Swiss francs -- although inflows were flat at its core wealth management unit after 1 billion in the third quarter and big withdrawals in the first half.

We are optimistic that overall positive net new money inflows will continue in the first quarter. For the full year, we believe that net new money will strengthen noticeably, UBS said in a statement.

Clients rattled by huge writedowns on toxic assets and a U.S. dispute over clients who dodged taxes using secret Swiss accounts had pulled nearly 400 billion francs from the world's second-largest wealth manager in recent years.

The results are a relief after the poor results of U.S. brokers and those from Deutsche Bank and even Julius Baer, said Helvea analyst Peter Thorne. It is a relief to hear their optimism for 2011.

UBS shares were up 1.6 percent at 17.77 francs at 0956 GMT, against a 0.7 percent weaker European STOXX banks index <.SX7P>.

Analysts said litigation charges of 230 million francs and an own credit charge of 509 million in the investment bank mainly explained why quarterly profit missed forecasts.

Gruebel's overhaul of the investment bank started to pay off in the fourth quarter as equities and fixed income, commodities and currencies (FICC) revenues improved, though the own credit charge, as well as losses on student loans, kept net profit to just 75 million Swiss francs ($78.35 million) after a surprise loss for the previous three months.

Highlights were an increase in FICC and equity trading revenues in Q4/Q3 against the trend of peers, net new money just positive in wealth management and a 1 percent jump in the Tier 1 to 17.7 percent. said Nomura analyst Jon Pearce. Net we see slightly more for the bulls than the bears.

U.S. banks reported weak investment banking activity in the fourth quarter, with Goldman Sachs suffering a year-end slump in trading revenue, while Deutsche Bank's fourth quarter profit missed expectations.

UBS described the investment bank results as unsatisfactory in relation to our ambitions but said it expects some improvement in the business's trading results in the first quarter, though this depended largely on market conditions.

We do expect the investments we have been making in certain of our securities trading operations to bear fruit during 2011, UBS said, adding its financial advisory business was promising.

UBS was forced to cut risky but potentially very profitable proprietary trading in favor of client flow business after it took huge losses in the financial crisis pushing it to take a bailout from the Swiss government in 2008.

We still see UBS to be on track to reach the mid-term targets and see upside in the investment bank which is still undergoing tremendous changes, said Vontobel's Tobias Bruetsch, adding his IB forecasts looked too conservative.

BANK SECRECY PRESSURE HURTS

While the bank won client cash in the Asia Pacific region -- traditionally an area of strength for UBS -- and among the ultra wealthy and Swiss customers, it continued to bleed a small amount of assets both onshore and offshore in Europe, where neighboring countries have attacked Swiss bank secrecy.

However it attracted 3.4 billion francs of new money to its Americas business after a small net outflow the previous quarter, rebuilding client trust after a tax dispute that ended with UBS being forced to hand account data to U.S. authorities.

Wealth management revenues rose 2 percent in the fourth quarter, though the unprecedented strength of the Swiss franc partly offset increased client activity, UBS said.

On Monday smaller Swiss wealth manager Julius Baer took a hit from the strength of the Swiss franc against the euro and the U.S. dollar, suggesting Gruebel's former bank, Credit Suisse , could report a similar pattern in its Q4 results due Thursday.

UBS said its BIS tier 1 capital ratio rose to 17.7 percent from 16.7 percent the previous quarter -- among the strongest in the industry -- as it reiterated it did not plan to pay a dividend for 2010 or some time to come as it retains earnings to build capital to meet tough new regulatory requirements.

We will continue to assess the impact of new capital standards and other regulatory requirements on the profitability of each of our businesses and, where necessary, we will take the appropriate action, it said in a letter to shareholders.

UBS, which is still the focus of Swiss public hostility after booking the biggest loss in the country's history in 2008, said it would pay out 10 percent less in bonuses for 2010, cutting the bonus pool to 4.3 billion francs.

It also said 1.550 billion francs of the bonus pool would be deferred to future years, with employees who earn over 250,000 francs receiving at least 60 percent of their bonus in shares deferred over three years.

(Additional reporting by Emma Thomasson; Editing by Sophie Walker)

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