http://online.wsj.com/article/SB10001424052748704204304574543792562324078.html



Moody’s Investors Service downgraded various ratings on Swiss bank UBS AG, citing challenges in its investment-banking and wealth-management businesses.



Moody’s lowered the bank financial strength rating two notches to C and the long-term debt and deposit ratings one notch to Aa3, four steps below the top AAA rating. The ratings outlook is negative, meaning further downgrades are possible.



Moody’s pointed out UBS is exposed to more potential losses, especially to bond insurers, and the bank has benefited less than rivals from reviving capital markets. Because of a “significant turnover of senior managers” in the past two years, UBS is forced to pay more for new employees in those jobs and could be pressured to take more risks to compensate, Moody’s said.



The company has suffered a loss of customer confidence, as shown by net new money outflows for seven quarters in a row, and a loss of key employees, especially in the fixed-income section of its investment-banking business.



“We believe that UBS’s wealth management franchise is unlikely to return to previous levels of profitability until the bank can fully restore customer confidence,” said Moody’s Senior Vice President David Fanger.



On Tuesday, UBS’s head of investment banking said it will take time to reach its profit target, which it plans to do by grabbing share off rivals, as opposed to making large trading bets on its own book or using its balance sheet to buy business. The shift is part of the restoration of UBS’s investment bank after a failed attempt to break into the major leagues of investment banks in fixed income. That and ill-fated bets at an internal hedge fund caused major trading losses, which ultimately forced UBS to take a Swiss government-led financial aid package.



Earlier this month, UBS reported disappointing third-quarter figures, swinging to a loss in its fourth consecutive losing quarter.



Moody’s said it expects net new money flows in the wealth-management business will turn positive by the middle of next year, but margins are unlikely to expand significantly. The credit rater also assumes pretax margins in the wealth-management and Swiss bank segments will remain above 25% and overall revenue yield will remain above one percentage point.



UBS’s stock has gained 52% in the past year.