(Agencies)
Updated: 2008-02-15 07:17

UBS AG posted the biggest ever loss by a bank in the fourth quarter after $13.7 billion in writedowns on securities infected by US subprime mortgages.

Europe's largest bank by assets had a net loss of 12.5 billion Swiss francs ($11.3 billion), compared with a profit of 3.4 billion francs a year ago, the Zurich-based company said yesterday. UBS reported on Jan 30 a preliminary loss of about 12.5 billion francs for the period, after increasing writedowns.

Chief Executive Officer Marcel Rohner, on a conference call with journalists, described the results as "unacceptable" and declined to predict whether the bank will return to profit in the first quarter. Rising US subprime-mortgage defaults led to more than $145 billion in writedowns and loan losses at the world's biggest financial companies. The Group of Seven nations estimates the markdowns may swell to $400 billion, German Finance Minister Peer Steinbrueck said on Feb 9.

"The rot is spreading to other residential areas," ABN Amro Holding NV analysts Kinner Lakhani and Omar Fall said in a note to clients last week. They recommend investors "avoid" UBS shares and forecast as much as $10.8 billion of possible further writedowns at the bank.

UBS slumped 36 percent in Zurich trading in the past six months, making it the sixth-worst performer in the 60-member Bloomberg Europe Banks and Financial Services Index, which lost 23 percent.

UBS's writedowns included $10.8 billion on subprime residential mortgages, $2 billion on so-called Alt-A mortgages, which fall between subprime and prime, and $871 million on credit protection purchased from monoline insurers. The bank recorded losses of about $500 million on commercial real estate and about $200 million on loans for leveraged buyouts.

UBS reiterated yesterday that 2008 will be "another difficult year."

The wealth management and business banking division raised fourth-quarter profit 12 percent to 2.5 billion francs, and asset management earnings increased 19 percent to 476 million francs. The investment bank had a loss in the quarter of 15.5 billion francs, compared with a profit of 1.36 billion francs a year ago.

UBS on Wednesday said it hired Jerker Johansson as head of its investment bank, replacing Huw Jenkins, who left in October after debt writedowns. The 51-year-old vice-chairman for Europe at Morgan Stanley will join UBS on March 17 after 22 years at the second biggest US securities firm.

Johansson "faces many problems at his new firm, including restoring morale, cutting the problem exposures and convincing staff and clients that the investment bank has a long-term future at UBS," Peter Thorne, a London-based analyst at Helvea, said in note.

Competitors fare well

Rohner, who replaced Peter Wuffli in July, has said he wants the investment bank to cut risks and assets and work more closely with the money-management divisions. He already cut 1,500 jobs at the securities unit and has brushed off calls to sell it.

UBS's main European competitors have so far fared better in the subprime debacle. Frankfurt-based Deutsche Bank AG, which controls Europe's biggest securities unit by revenue, last week reported a smaller-than-expected decline in quarterly profit, managing to avoid any net writedowns on bonds after booking gains from hedges, and recorded a 44 million-euro ($64 million) markdown on leveraged loans.

Credit Suisse Group, Switzerland's second-biggest bank, said on Tuesday it took 1.3 billion francs in net writedowns in the fourth quarter. CEO Brady Dougan said the bank is "well positioned" in the current markets, which may become "more constructive" by the middle of the year.

Problems remain

UBS Chairman Marcel Ospel, 58, and Rohner, 43, told analysts and investors in London on Dec 11 that record losses were a result of positions created "by a small group of people in one team".

To replenish capital after the first annual loss since the bank was created in a merger a decade ago, UBS is seeking shareholder approval to sell 13 billion francs in bonds that will convert into shares to investors in Singapore and the Middle East.

"The problems that the financial industry faces have not evaporated with the turn of the year," Ospel and Rohner said in a letter to shareholders last month. "2008 is likely to be another generally difficult year."

Shareholders including the Ethos Foundation are calling for a special audit into the bank's risk controls and a replacement of Ospel, who said in December he isn't thinking of resigning.

The Swiss Federal Banking Commission has also initiated an investigation into reasons that led to the bank's subprime holdings and subsequent writedowns, as well as risk management.