UBS and CS among casualties of banking woes

It's not been a good day for the banks on European stock exchanges, including that of Zurich Keystone

Shares in Switzerland's big banks were among many European shares to suffer badly on Thursday over fears of more write-downs.

The declines coincided with the head of the Swiss banking commission, Daniel Zuberbühler, warning that subprime mortgage losses in the United States might spread to other credits.

The share price of UBS, the world’s largest wealth manager, slumped by more than nine per cent at one point, amid fears that Switzerland’s largest bank could experience its largest fall in ten years. They later recovered slightly to close 3.8 per cent down.

It comes a day after UBS reported a surprise $4 billion write-down bringing the total cost arising from the subprime sector to $18.4 billion. The bank also announced it would make a loss of SFr4.4 billion for 2007.

At rival Credit Suisse Group, shares fell by 5.5 per cent at one stage and closed 0.9 per cent down.

“Risks today are no longer limited to subprime mortgages. They are now spilling over into credit cards, retail and commercial loans,” Zuberbühler told the mass-circulation newspaper, Blick.

Zuberbühler oversees the huge Swiss financial sector and sits on the influential Basel Committee on Banking Supervision.

More to come?

“People here are talking about the next hotspots, meaning areas that will come under pressure next… It cannot be ruled out that there could be more to come,” he added.

Banks in Europe, in particular Britain, also face an economic slowdown this year in a tough housing market.

“It is the continuing falls in house prices, both here and in the US, that is of great concern… as long as house prices keep falling, mortgage bad debts will keep rising, because banks will keep tightening their lending criteria,” analysts at stockbrokers Panmure said in a note about British banks.

UBS has suffered the most among European banks in the current subprime crisis and is seeking a capital injection of SFr13 billion from Singapore and an unnamed Middle East investor.

The crisis has put mounting pressure on UBS chairman, Marcel Ospel, to step down at the annual shareholder meeting in April.

The Tages-Anzeiger newspaper of Zurich was the latest to call for Ospel’s head, depicting him in a cartoon on its front page on Thursday.

swissinfo with agencies

Planned investors in UBS

The Government of Singapore Investment Corporation (GIC) is a global investment management company established in 1981 to manage Singapore’s foreign reserves.

It has negotiated a SFr11 billion investment of UBS mandatory convertible notes with a 9% coupon that will convert into a 9% stake in the bank within two years.

GIC also has stakes in a number of other financial institutions, both domestic and foreign banks such as Standard Chartered Bank, Barclays Bank and Merrill Lynch.

The other unnamed investor from the Middle East proposes an investment in UBS of SFr2 billion. UBS shareholders will vote on the combined deal in February.

swissinfo.ch