By Katharina Bart
ZURICH (Reuters) - UBS beat expectations for first-quarter profit thanks to a surge in trading income from its investment bank and more fees from wealthy clients.
Net profit at Switzerland's biggest bank slipped 5 percent to 988 million Swiss francs ($1.05 billion) compared with average analysts forecasts of 601 million in a Reuters poll.
UBS, which is cutting 10,000 jobs in a retreat from riskier fixed income activities, cautioned that economic worries might slow trading by wealthy clients and hit second-quarter revenue, margins and fresh inflows.
But it said it was confident it would keep winning net new money, a key bellwether for future revenue.
UBS's private bank, which forms the cornerstone of the bank's strategy and must deliver the bulk of the profit in future as the investment bank shrinks, snapped back from a poor fourth quarter with a 67 percent rise in pretax profit.
Fees from trading and transactions at the private bank perked up on a "significant uptick" of client activity in the first six weeks of 2013, particularly in Asia, UBS said.
"It's too early to declare victory for sure, but it's good to see we're gaining momentum," UBS Chief Executive Sergio Ermotti told journalists at a briefing.
UBS, the second-largest private bank in the world after Bank of America , is trying to rid itself of a scandal-tainted image and focus far more strongly on private banking clients, or those with more than $1 million in assets to bank.
In December, UBS paid a $1.5 billion penalty for taking part in a multi-year scheme to manipulate Libor and other benchmark interest rates.
With 15 billion francs in fresh funds won from clients, the private bank posted its best showing since 2007, before the subprime crisis hit and caused massive withdrawals.
On Monday, better-than-expected results at Deutsche Bank were overshadowed by a 2.8 billion euro ($3.67 billion) capital increase to beef up its balance sheet.
In contrast, UBS said it had become the first bank to bring capital above the key 10 percent ratio demanded by new regulations, posting a 10.1 percent common equity Tier 1 capital ratio in the quarter.
UBS's investment bank swung to a pretax profit of 977 million francs, driven by higher trading income. The unit hiked revenue 20 percent using 10 percent less of its balance sheet, and 15 percent fewer staff, the bank said.
In total, UBS cut nearly 2,461 jobs in the quarter, part of the overall 10,000 cuts announced last October.
The securities unit's trading arm benefited from strong foreign exchange business -- where it maintains a strong position -- due to currency volatility.
The sale of a proprietary trading business also won UBS 55 million francs. The advisory arm won a large private transaction, which bolstered equity capital markets.
Like many banks, UBS is shrinking riskier assets because they soak up costly capital. The bank cut risk-weighed assets back to 259 billion francs in the quarter, within striking distance of its year-end target of 250 billion. ($1 = 0.9368 Swiss francs)
(Reporting by Katharina Bart, editing by Emma Thomasson)