UBS AG, the European bank hardest hit by the U.S. sub-prime crisis, said it may avoid a loss in the second quarter after about 3 billion Swiss francs ($2.9 billion) in tax credits.

The largest Swiss bank may post results ``at or slightly below break-even,'' the Zurich-based company said in a statement. Citigroup Inc. analysts this week forecast a net loss of 4.56 billion francs for the quarter and about 7 billion francs in asset write-downs.
Chief Executive Officer Marcel Rohner is cutting 5,500 jobs, shutting businesses at the investment-banking unit and trying to stem defections among wealthy clients after 25.4 billion francs of net losses in the previous three quarters. UBS, scheduled to publish quarterly results on Aug. 12, said today it sees no need to raise further capital.
``The market had expected more write-downs at the investment bank,'' said Florian Esterer, a senior portfolio manager at Swisscanto Asset Management, which oversees about $63 billion.
Banks worldwide have announced $402 billion in write-downs and credit losses related to the sub-prime crisis. Markdowns at UBS, which amounted to more than $38 billion in the previous three quarters, led the bank to raise more than $29 billion of capital from investors this year.
UBS fell 68 percent in Swiss trading over the past year, cutting the company's market value to 61.6 billion francs. The Swiss bank said the tax credits are related to its losses to date, without elaborating.
UBS, which posted a profit of 5.55 billion francs in the second-quarter of last year, said financial market turmoil contributed to write-downs and a loss at the investment bank in the past three months. UBS's money management division suffered client defections in the quarter, with the withdrawals most pronounced in April, UBS said.
``What worries me are the net new money outflows, which indicate a serious problem for the franchise,'' Esterer said.
The U.S. Department of Justice is probing whether UBS helped rich clients evade American taxes, and a federal judge this week authorized the Internal Revenue Service to issue a summons to the bank for client information as part of the probe. The bank has said that it's ``working diligently'' with both Swiss and U.S. authorities.
Growth in assets from affluent clients at UBS, the largest manager of money for the wealthy, slowed to 8.8 percent in 2007 from 13 percent in the previous year, according to an annual survey by Scorpio Partnership released last week.
Chairman Peter Kurer, who replaced Marcel Ospel in April, told shareholders at the annual meeting that he will lead a strategic review of all of the bank's businesses to make them better complement the wealth management unit, which he called UBS's ``core franchise.''
The bank plans to inform shareholders about results of the review at an extraordinary shareholders meeting on Oct. 2. The meeting was called to elect four new board members, as Kurer seeks to increase the level of financial expertise on the board after criticism from shareholders including former UBS President Luqman Arnold.
UBS brought in Jerker Johansson from Morgan Stanley in mid- March to run its investment-banking unit. Johansson in May took control of the firm's fixed-income business from Andre Esteves, who ran it for less than 10 months and left in June.
Johansson also announced plans to shut the U.S. municipal bond business, split off proprietary trading of both stocks and debt into a separate unit within the investment bank, and hired former Morgan Stanley colleague Thomas Daula as chief risk officer for the division.
UBS is cutting about 26 percent of the headcount at its fixed-income division, and about 9 percent in investment banking and equities
(Source: Bloomberg)