The embattled U.S. wealth management business of Swiss bank UBS AG continued to bleed client assets in the fourth quarter, hurt by fleeing advisers and negative publicity from a tax-fraud scandal.

UBS Wealth Management Americas, mostly the U.S. brokerage formerly known as PaineWebber as well smaller businesses in Canada and Puerto Rico, generated pre-tax profit of 178 million Swiss francs ($166 million) in the quarter. That was up 62 percent from the third quarter and a rebound from a year-ago loss driven by settlements related to auction-rate securities.

But the results were sobering for UBS Americas, which suffered defections of front-line brokers and clients. It said its ranks of advisers fell by 202, or 3 percent, to 7,084 during the quarter.

Half of the departures reflected brokers jumping ship. UBS executives told analysts on Tuesday that the rest were culled under an aggressive job-cutting scheme. Meanwhile, UBS pulled back recruiting efforts after offering some of the Street's most lucrative pay packages.

UBS group Chief Financial Officer John Cryan told analysts that UBS wanted to start recruiting again but that attracting financial advisers in the Americas was challenging.

Adviser defections, a headache every major U.S. brokerage has had to contend with, hit UBS Americas particularly hard in the fourth quarter.

In dollar terms, roughly $11.2 billion of assets were withdrawn by UBS Americas clients -- more than twice the amount analysts had forecast and nearly 2 percent of total client assets. That followed third-quarter outflows of $9.3 billion.

The outflows were offset by rising market prices. UBS Americas client assets were little changed during the fourth quarter at 737 billion francs, or $690 billion.

The results capped the unit's first quarter under the leadership of Robert McCann, a former Merrill Lynch executive recruited in October to revive the No. 4 U.S. brokerage.

McCann, who has kept a low profile since joining UBS Americas, is expected to unveil his plans for the business around March 1, after an inaugural 100 day period of preparation.

Heavy outflows and adviser attrition show that McCann's renewal team of other ex-Merrill executives faces a tough battle helping UBS recover from years of credit losses and now the fallout from a U.S. tax-dodging scandal.

In February 2009 UBS agreed to pay $780 million and disclose the names of 250 clients to settle a criminal probe by U.S. authorities. The Swiss bank was accused of helping American clients avoid taxes by hiding assets abroad.

UBS' fourth-quarter net profit came in at 1.205 billion Swiss francs, its first positive quarter after four negative ones, helped by one-time gains. The figure beat expectations of 326 million francs in a Reuters poll.

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