ZURICH (Reuters) – UBS AG will cut 11 percent of staff as it tries to stem losses and client withdrawals, its new chief executive said on Wednesday, warning that Switzerland’s largest bank still faces an uncertain future.

Chief Executive Oswald Gruebel, the veteran former Credit Suisse boss pulled out of retirement in February to get UBS back into shape, said the bank will post a first-quarter loss of nearly 2 billion Swiss francs ($1.7 billion), mainly due to writedowns and outflows at its prized wealth management unit.

He announced plans to cut staff to 67,500 in 2010 from 76,200 last month in a bid to save up to 4 billion francs.

The new cuts come on top of thousands already announced during the crisis and mean UBS will have shrunk its workforce by almost a fifth from a headcount peak of 83,800 a year ago.

“Unfortunately I am not able — as yet — to offer you any good news. Instead I am forced to present you with another round of unsatisfactory performance figures and to announce further drastic measures,” Gruebel told nearly 5,000 UBS investors gathered in Zurich for the bank’s annual shareholder meeting.

“Our outlook remains cautious and we face many uncertainties,” he said.

UBS shares, which rallied on Tuesday on expectations of big job cuts, were down 8 percent at 12.23 Swiss francs. The DJ Stoxx European banking index shed 2 percent.

“The result is a huge disappointment. After the unexpectedly good figures from Goldman Sachs and Wells Fargo and optimistic comments from Deutsche Bank about the first months, we were expecting at least a flat result from UBS,” one trader said.

REBUILDING THE BANK

The crisis has already forced the world’s biggest wealth manager to announce $50 billion of writedowns and its shares lost nearly three quarters of their value in the last 12 months.

The first-quarter loss follows about 3.9 billion francs of losses on illiquid assets and 23 billion francs of outflows at the bank’s wealth management and Swiss bank division. UBS will report full first-quarter results on May 5.

UBS said the outflows mainly came after the bank agreed in February to reveal details of some U.S. clients and said it would pay a $780 million fine to settle a U.S. tax fraud investigation alleging it helped clients dodge taxes.

But wealth management in America performed well, with net new money amounting to 16 billion francs in the first quarter.

Shareholders will vote later on Wednesday on the appointment of former Swiss Finance Minister Kaspar Villiger to replace Peter Kurer as chairman after only a year in the job. Kurer was booed at times during the meeting.

UBS posted in 2008 a 20.9 billion franc full-year loss, the biggest ever for a Swiss company.

While UBS’s previous top management had said they aimed to return the bank to profitability this year, Gruebel gave no time frame other than saying it was his “most urgent task.”

“The only reason why we are still with UBS is because hope dies last, but if this carries on we will not tolerate it anymore,” said small shareholder Blandina Heyne.

REBUILDING THE BANK

In an internal memo to staff obtained by Reuters, UBS said 4,000 jobs would go in wealth management and the Swiss bank, down from about 49,500 at the end of 2008, although some of those cuts had already happened during the first quarter.

About 2,500 jobs would be axed at UBS’ home Swiss division, which employed above 26,000 people at the end of 2008.

“Cost-cutting is always a sign of weakness. It means you cannot generate profit,” said Kepler Equities’ analyst Dirk Becker. “It will take several quarters to rebuild the bank.”

The bank’s Tier 1 ratio, a measure of financial strength, fell to 10 percent at the end of March from 11 percent at the end of 2008, Gruebel said as he announced he would take steps to “immediately protect and strengthen the bank’s capital base.”

UBS will ask shareholders on Wednesday to allow it to issue up to 10 percent of share capital as a contingency measure.

Gruebel said investment banking, which is to blame for most of UBS’ losses, would continue to be a necessary business for the bank alongside the bank’s core wealth management division.

He said the investment bank would build on its strength in equities, foreign exchange, corporate finance and M&A, but would exit other areas and geographies.

“Gruebel has the authority to take the necessary steps to improve profitability at UBS,” Sal Oppenheim said. “Going forward, we will hear more about closing unprofitable business.”

The iconic Swiss bank has received a state cash injection of 6 billion Swiss francs and the Swiss National Bank agreed to put some $40 billion of UBS’ toxic assets into a special fund.

(Additional reporting by Rupert Pretterklieber, Josie Cox)

($1=1.152 Swiss Franc)