UBS Group AG on Tuesday reported a 52% slide in quarterly income, having made an additional $665 million in provisions to cover litigation costs related to U.S. residential mortgage-backed securities that played a central role in the global financial crisis.
UBS Group slid 4.4% in premarket trading.
UBS Group has set aside more money to draw a line under its involvement in toxic mortgages, halving its first-quarter profit as it prepares to swallow fallen rival Credit Suisse .
Chief Executive Sergio Ermotti, back in the saddle to steer the takeover, also said "challenging" economic conditions had dampened the mood of the bank's customers and warned of the difficulties ahead as it embarks on an integration process that may take four years.
"We need time," he said in an online video. "Things are going to be hard."
The attempt by Switzerland's biggest bank to make a clean sweep of problems dating back to the global financial crisis underscores its vulnerability as it takes on the Herculean task of absorbing Credit Suisse - one whose long list of challenges includes dealing with a backlash against the deal at home.
UBS said concerns about the banking sector globally persisted and customer activity "could remain subdued in the second quarter", adding, however, that higher interest rates would bolster lending income.
Net profit attributable to shareholders came in at $1 billion, below the $1.7 billion consensus average from a UBS-conducted poll.
But the world's largest wealth manager also reported strong inflows, some $42 billion.
Its flagship wealth management division received $28 billion in net new money, a quarter of which came in the last ten days of March after the announcement that it would be taking over Credit Suisse.
It reported a slight decrease in year-on-year profit before tax and revenue for the division. It said there had been an increase in deposit revenues stemming from higher interest rates but at the same time some clients had shifted to lower-margin products.