updated 5/6/2008 7:49:38 AM ET 2008-05-06T11:49:38

Swiss bank UBS, hard hit by the U.S. subprime crisis, reported a first-quarter loss of $10.97 billion and said Tuesday it will slash almost 7 percent of its work force.

The 11.5 billion Swiss franc loss compares with a net profit of 3 billion francs in the same period last year. The company also said it would unload $15 billion in subprime and other mortgage-based securities from its portfolio.

UBS AG shares tumbled on the news.

The bank warned investors last month to expect net losses of $11.42 billion from the first three months of the year after writing down about $19 billion on U.S. real estate and related credit positions.

Switzerland’s largest bank said it will cut 2,600 jobs in its investment banking arm — which took the blame for most of UBS’ record $37.4 billion in write-downs since last summer. Most of the job cuts will be in Britain and the U.S., the bank said.

UBS will trim another 2,900 jobs across the company, mostly through attrition, bringing the total number of posts cut by mid-2009 to 5,500 overall. UBS has more than 83,800 employees worldwide.

UBS has struggled to regain investor confidence since a string of heavy losses prompted shareholders to demand radical changes at the traditionally staid bank.

Shareholders last month voted in a new chairman and a capital increase of 15 billion francs ($14.9 billion) to distance UBS from historic losses. Earlier this year, UBS raised 13 billion francs after seeking help from a Singapore government fund and an unidentified Middle East investor.

UBS said Tuesday it has reduced its exposure to subprime-related assets by 60 percent since the third quarter of 2007.

“We can see tangible effects as a result of our initial responses to the losses,” CEO Marcel Rohner said in a statement. “While our exposure is still subject to swings in market conditions, we see market demand for these securities returning in certain areas and at the current level of valuations.”

In a conference call with analysts, Rohner confirmed reports that UBS is selling parts of its subprime portfolio to U.S. asset manager BlackRock Inc. for $15 billion (9.7 billion euros). UBS will be involved in setting up the fund, which will be composed of subprime and higher value Alt-A positions, he said.

The bank also addressed the continued ebb in confidence from banking clients, particularly in its home market Switzerland.

UBS said it suffered a net outflow of 12.8 billion francs ($12.17 billion) in the quarter, compared with a net inflow of 52.8 billion in the same period last year. Swiss customers withdrew 1.9 billion francs ($1.8 billion), while the bank’s global asset management division saw outflows of 16.5 billion francs ($15.66 billion).

The figures, which are a closely watched gauge of future revenue because they reflect general market conditions as well as customer confidence in the bank, were partly offset by inflows of 5.6 billion francs ($5.31 billion) in other units.

“The outflows we have experienced in Switzerland, and reduced levels of inflows experienced elsewhere, are, no doubt, also a reflection of the reputational damage that we have sustained over recent months,” chief financial officer Marco Suter said. “The capital increase will certainly help in this regard, but we remain cautious as to the near-term net new money outlook.”

UBS sent a letter to Swiss customers on Tuesday, acknowledging their “concern and disappointment” and reassuring them that “the bank remains strong” thanks to its solid capital base.

Rohner said recent data indicated that market conditions were improving, but that the financial environment would likely remain difficult for the rest of the year.

“This will weigh on revenues in the coming quarters,” he said, without elaborating.

He said UBS “will not rest until we have fully restored trust of our clients, of our shareholders and of our employees.”

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