UBS reports record loss

UBS AG, Europe's largest bank by assets, reported a record loss after about $14 billion of writedowns on assets infected by subprime mortgages in the United States.

The fourth-quarter net loss of 12.5 billion Swiss francs ($11.4 billion) brings the total decline for the year to about 4.4 billion francs, the Zurich-based bank said yesterday in a statement. UBS publishes its official results on Feb 14.

UBS posted its first annual loss since the company was created through a merger a decade ago, with the fourth-quarter drop exceeding the records reported earlier this month by Citigroup Inc and Merrill Lynch & Co. The collapse of the US subprime mortgage market has led to more than $130 billion of losses and markdowns at securities firms and banks since June.

"The damage is enormous," said Dominique Biedermann, director of Ethos Foundation in Geneva that holds UBS shares worth about 80 million francs and has called for an independent audit of the bank's controls. "It wipes out profit and shows that an inquiry is needed to make sure it doesn't happen again, and eventually whose responsibility this is."

UBS fell as much as 4.1 percent in Zurich, and traded 1.2 percent, or 58 centimes, lower at 46.22 francs at 10:45 am. The stock has fallen 12 percent this month, giving the bank a market value of 96 billion francs.

The company reported about $12 billion of losses directly linked to the subprime market and an additional $2 billion for positions related to the US residential market. "Weak" debt-trading revenues and sale of securities at a loss to cut risky assets contributed to the fourth-quarter loss, UBS said.

The bank, which ousted Chief Executive Officer Marcel Rohner's predecessor Peter Wuffli in July, said this month that 2008 will be another "difficult" year for financial companies.

"I'm not ruling out further writedowns but it's safe to say that the worst is now behind them," said Madeleine Hofmann, senior banking analyst at Julius Baer in Zurich. "I'm expecting things to get better from now on."

To increase capital, the bank said on Dec 10 it aims to sell 13 billion francs in bonds convertible into shares to Government of Singapore Investment Corp and an unidentified Middle Eastern investor. It also proposed replacing the cash dividend with stock and a resale of 36.4 million treasury shares to help raise another 6.4 billion francs.

The company said its so-called Tier 1 capital ratio, a measure of its ability to cover unexpected losses, was 8.8 percent as of Dec 31, excluding the planned convertible bond sale. Banks in Switzerland need a minimum ratio of 8 percent.

UBS said this month that it will shut a US group that makes bets on fixed-income investments and cut the number of employees who underwrite, package and trade mortgage-related securities by 50 percent from the peak in August.

"At this stage who knows what else they might report, we'll have to wait" until the full results are published, said Florian Esterer, who helps manage $56 billion at Swisscanto Asset Management in Zurich. "Risk management must have been non-existent as they seem to find massive exposure in all sorts of pockets."

Walter Kielholz, chairman of Credit Suisse Group, indicated that UBS' biggest Zurich-based competitor didn't have large writedowns in the fourth quarter.

"We will be releasing our results in 10 days and haven't made any statements," Kielholz told Swiss television.

Merrill, the biggest US brokerage, reported a record fourth-quarter net loss of $9.83 billion after $16.7 billion of writedowns. Citigroup, the biggest US bank, also posted a $9.83 billion loss after an $18 billion charge. Morgan Stanley and Bear Stearns Cos also had losses.

Agencies

(China Daily 01/31/2008 page16)