UBS plunges into the red

Switzerland's largest bank is going through dark times Keystone

UBS will post a SFr4.4 billion ($4 billion) full year loss for 2007 after announcing further significant writedowns relating to the subprime crisis.

Switzerland’s largest bank announced an extra $4 billion writedown on Wednesday, bringing the total cost arising from the collapsed United States subprime mortgage sector to $18.4 billion.

The embattled bank had previously warned that it might report a loss for the full year of 2007 depending on its performance in the past three months of last year. But it was not expected to reveal the full extent of its financial woes until its annual results announcement on February 14.

Zurich Cantonal Bank analyst Andreas Venditti told swissinfo that the additional losses were higher than forecast by the market, a factor that probably led to timing of the surprise statement.

“Some people were predicting a flat or even a slightly positive result, and at worse a SFr2 billion loss, so these figures are materially different from expectations,” he said.

“UBS may have made their announcement now to stop rumours of even higher losses from circulating.”

Another analyst said the losses were bad “but not a total shock.”

The bank still has exposure to potentially shaky investments, but it is unclear just how much of it is in the very high risk category.

The real test for UBS is how the world’s economies develop in the current uncertain environment, according to Venditti. This would determine if the bank is forced to issue more bad news or can mount a fightback.

“More important for UBS is the outlook going forward: what are the markets doing, what are interest rates going to do and will there be a recession?” he said.

Credit crisis

UBS is one of the hardest-hit banks worldwide from the credit crisis that has caused more than $100 billion in losses and forced some of the financial world’s main players, such as UBS, Citigroup and Merrill Lynch, into emergency capital-raising measures.

UBS is now struggling to restructure its investment bank and repair its credibility after the staggering losses, which have pushed its shares 40 per cent lower over the past year.

The bank said in a statement the results reflect $12 billion in losses from the US subprime market, plus $2 billion in losses from other US residential mortgages and that weak trading income dragged performance lower as well.

UBS had already taken charges of $14.5 billion on its exposures to US subprime mortgages and last month announced a SFr13 billion capital injection from Singapore and an unidentified Middle East investor. Shareholders will vote on this proposal on February 27.

The Swiss bank’s huge losses, which have prompted calls for it to spin off its investment banking business and concentrate on its highly successful wealth management activities, stem from a disastrous hedge fund venture into subprime mortgages.

swissinfo with agencies

In brief

UBS endured a stormy 2007, starting with the collapse of its hedge fund Dillon Read Capital management. Two months after that, in July, chief executive Peter Wuffli abruptly departed without clear explanation.

In October of last year, UBS said it would cut 1,500 jobs in its investment banking arm, including its head Huw Jenkins. UBS chief financial officer, Clive Standish, also left at the same time.

Later that month the bank announced it was writing off SFr4.2 billion on subprime losses and SFr726 million pre-tax loss for the third quarter – the first quarterly loss in nine years.

In December, UBS said another $10 billion (SFr11.3 billion) would be written off as the US subprime crisis deepened.