But the bank reported a "partial recovery" in client activity levels, including investment from the wealthy, that has helped it come back from a scandal last September, when a trader was arrested on charges of committing fraud that cost the bank over $2 billion.
Shares of UBS stock shot up 6 per cent in mid-morning trading, to 12.01 francs ($13.22).
A more detailed look at the figures shows that the company's net profit in the January-March quarter fell to 827 million francs ($910 million) from 1.81 billion francs compared with the same period last year. Revenue also fell 22 per cent to 6.53 billion francs, down from 8.34 billion francs.
The company said its first-quarter profit was saddled by a 1.16 billion francs ($1.28 billion) accounting charge on the bank's own credit due to the rising value of the bank's own bonds.
That contributed to a pretax loss of 373 million francs from its investment banking. Profit from UBS wealth management rose 24 per cent to 803 million francs, in part due to a cut in expenses in the company's Swiss pension plan.
UBS offered a somewhat grim outlook for the second quarter of 2012, however, owing to Europe's sovereign debt crisis, the U.S. federal deficit and continuing global uncertainties.
"Failure to make progress on these key issues would make further improvements in prevailing market conditions unlikely and would have the potential to continue the headwinds for revenue growth, net interest margins and net new money," the bank reported.
It was just the second quarter for the bank under the leadership of Chief Executive Office Sergio P. Ermotti, who took over in September with the aim of restoring clients' trust following a case of alleged rogue trading in its investment bank that cost UBS $2 billion.
Former UBS trader Kweku Adoboli has pleaded not guilty to two counts of fraud and two counts of false accounting between 2008 and 2011. Ermotti has pledged to tighten oversight at UBS and restructure the ailing investment banking unit where the trading scandal occurred.
Last month, the spectre of a damaging tax evasion case rose again. After resolving a long-running tax probe in the United States with a $780 million fine and the handover of thousands of client files, UBS now faces allegations by former staff in France that it also helped French clients cheat on their taxes.
The bank strenuously denies the allegations and says it will defend itself using "appropriate legal means."
Ermotti said Thursday that despite the "challenging market conditions," the bank had performed well.
"We improved operational performance across all our businesses, strengthened our leading capital ratios further, reduced risk-weighted assets and remained vigilant on costs," he said in a statement. "The strong net new money inflows in our wealth management businesses provide further clear evidence of the trust our clients place in UBS."
The first-quarter results for 2012 marked a turnaround from the last quarter of 2011 when the bank, Switzerland's biggest by market capitalization, posted a net profit of 319 million francs.
Rival Credit Suisse reported a 95 per cent drop in first-quarter net profit last week due to writedowns, staff severance costs, bonus payments and the strong Swiss franc.