Swiss bank UBS does not expect to win back assets from rich clients any time soon as it struggles to rebuild its reputation after a bitter U.S. tax row even as its underlying performance improves.

Higher-than-expected accounting charges pushed UBS into its fourth consecutive quarterly loss and disappointing total net withdrawals of 36.6 billion Swiss francs ($36 billion) at its key wealth and asset management business prompted shares to fall more than 9 percent to its lowest level in nearly three months.

UBS's results contrast with stellar profits seen at European peers Credit Suisse and Deutsche Bank which both took advantage of a rebound in investment banking while UBS was slashing its own operations.

Operational improvement is continuing, although not yet in UBS's flagship business wealth management, which suffered from the U.S. tax case and various other negative impacts, said Bank Sarasin analyst Rainer Skierka.

Investors should not expect substantial improvements in UBS's results before 2010.

UBS stock was down 6.5 percent at 16.21 Swiss francs by 1351 GMT, helping dampen sentiment on European bourses. The DJ Stoxx European banking index fell 3.1 percent.

For a graphic showing UBS's profit and share price, click here: http://graphics.thomsonreuters.com/119/CH_Q3UBS1109.gif

UBS's net loss of 564 million Swiss francs was narrower than 1.4 billion Swiss francs in the second quarter but larger than average analyst forecasts for 207 million. The bank's 2008 loss was 21.3 billion francs, the highest in Swiss corporate history.

We do not expect an immediate recovery in client net new money flows, Chief Executive Oswald Gruebel and Chairman Kaspar Villiger said in a letter to shareholders.

But they noted that pretax operating profit excluding charges nearly doubled to 1.6 billion francs, signaling the crisis-hit Swiss bank was gradually on the mend.

I expect to see further progress in future quarters, particularly in 2010. However, this progress will depend on market and other factors, Gruebel also said.

Gruebel, a former CEO at Credit Suisse, is expected to give more details on his strategy at an Investor Day on November 17.

UBS's Tier 1 ratio, a measure of a bank's financial strength, rose to a better-than-expected 15 percent at the end of the third quarter against 13.2 percent the previous quarter.

TROUBLE IN AMERICA

UBS Chief Financial Officer John Cryan told an analyst call the core wealth management unit would be under pressure as long as the bank reported losses and also noted UBS was under greater scrutiny than rivals amid a global clampdown on tax havens.

During the quarter, UBS settled a U.S. lawsuit, in which Washington accused it of helping rich Americans hide money in Switzerland, but still saw client withdrawals at the troubled Americas wealth management division accelerate to nearly 10 billion francs, almost twice as much as in the previous quarter.

The brand has been more hit by reputation issues than expected -- especially in the Americas, Vontobel analyst Teresa Nielsen said in a client note.

UBS agreed to disclose some 4,450 client names to settle the U.S. tax case, helping pierce Swiss bank secrecy and prompting offshore customers to withdraw assets. UBS also suffered because financial advisors left the franchise, taking clients with them.

UBS hired Merrill Lynch veteran Robert McCann last week to try to rebuild its U.S. franchise.

Net client withdrawals at the Wealth Management and Swiss Bank division, were as large as in the previous quarter, with UBS losing net money also among Swiss clients.

In asset management, UBS did better than in the previous quarter, but outflows were still worse than analyst forecasts.

UBS has suffered total net client withdrawals of 91 billion Swiss francs in asset and wealth management this year.

Profitability at UBS's investment bank improved to break even, but was overshadowed by accounting charges.

These included an own credit charge of 1.436 billion Swiss francs and a net loss of 409 million on its sale of it Brazilian Pactual unit and charges related to the conversion of the notes issued to the Swiss government after the bank got state aid.

Switzerland sold its UBS stake in August.

Cryan said he expected the investment bank to continue to improve into 2010, but said UBS risked another big charge on its own credit in the fourth quarter as spreads tighten further.

The investment bank is on the definitive road to recovery but it will be a bit of a wobbly road, UBS's Cryan added.

UBS said its cost cutting program was on track and said it had adjusted its headcount target for 2010 to 65,000 from a previous 67,500. It had 69,000 staff at the end of September 2009.

($1=1.021 Swiss francs)

(Additional reporting by Rupert Pretterklieber and Emma Thomasson; Editing by Mike Nesbit)

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