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UBS To Post Record $11.45 Billion Loss

ELIANE ENGELER   01/30/08 01:11 PM ET   AP


GENEVA — Subprime mortgage woes deepened for Swiss banking giant UBS AG, which Wednesday said it expects a $11.45 billion hit in the fourth quarter and its first annual loss.

Switzerland's largest bank said full-year net losses will amount to 4.4 billion francs ($4.03 billion). Some analysts fear there may be even greater fallout as the bank tries to free itself from extensive holdings of bad U.S. debt.

Also Wednesday, French bank BNP Paribas SA estimated that fourth-quarter net profit plunged 42 percent, pointing to a "deepening crisis" in the market during the second half of the year. The reports signify how deeply banks in Europe have been affected by defaults on U.S. mortgages that were issued to consumers with sketchy credit histories, repackaged with other debt, and sold on the market.

UBS was formed a decade ago through the combination of Union Bank of Switzerland and Swiss Bank Corporation, resulting in the world's largest wealth manager. A decade of stable growth came to a halt late last year with a series of writedowns from exposure to subprime mortgages.

The bank said the fourth-quarter losses "will include around $12 billion (8.12 billion euros) in losses on positions related to the U.S. subprime mortgage market and approximately $2 billion (1.35 billion euros) on other positions related to the U.S. residential mortgage market."

UBS earnings will be published on Feb. 14.

Shares in UBS closed down 1.58 percent at 46.06 francs ($42.20) in Zurich.

"The loss is higher than expected," said Andreas Venditti, an analyst with Zuercher Kantonalbank. "The additional losses were especially disconcerting. This will probably lead to further uncertainty."

UBS said in December that it had around $29 billion (19.6 billion euros) in subprime holdings. The bank did not provide an update Wednesday on those numbers.

Other analysts were more reserved in their assessments.

Matthew Clark, of Keefe, Bruyette & Woods Inc., said he believed the worst of UBS' subprime problems were over, but added that analysts "remain concerned that the consequent impact on UBS' franchise will not be clear for several quarters."

Peter Thorne, with independent brokerage Helvea SA, said the net losses are bad "but not a total shock."

"Given what U.S. firms have reported lately, UBS seemed a bit light on their subprime exposure," he said, adding that the additional $2 billion loss linked to other segments of the U.S. mortgage market is not really surprising.

UBS said that its ratio for measuring a bank's capital strength remained above the minimum level requested by Swiss banking regulators.

For the second half of 2007, total UBS writedowns resulting from the U.S. subprime mortgage crisis amounted to $18.4 billion. In December, when the previous losses were announced, the bank said it would post a loss for the fourth quarter and may record a full-year net loss.

UBS subsequently said it would raise billions through share sales to sovereign wealth funds in Singapore and the Middle East. Government of Singapore Investment Corp. injected 11 billion francs ($9.75 billion), while an undisclosed investor in the Middle East purchased a 2 billion francs ($1.77 billion) stake.

The capital injections must be approved in an extraordinary general assembly on Feb. 27.

Analysts believe a majority of shareholders are likely to approve the deal, though some minority shareholders have raised concerns.


Associated Press writer Balz Bruppacher in Bern, Switzerland, contributed to the report.


Filed by Michelle Kung  |