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UBS reports Q4 net loss of $11.28 bn linked to US subprime woes

UBS reports Q4 net loss of $11.28 bn linked to US subprime woes
AP
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First Published: Fri, Feb 15 2008. 12 36 PM IST
Updated: Fri, Feb 15 2008. 12 36 PM IST
Zurich: Swiss bank UBS AG on Thursday posted a massive $11.28 billion loss for the fourth quarter of 2007 after writing down $13.7 billion in bad investments from US subprime mortgages, and said next year would be rough too.
“UBS expects 2008 to be another difficult year,” the company said.
UBS shares plunged on the Zurich exchange to close down 8.32% at 37.46 US$33.93.
The bank’s loss exceeded fourth-quarter losses posted by other major lenders hit hard by subprime woes, including Merrill Lynch & Co., $9.91 billion and Citigroup Inc., $9.83 billion.
UBS said it still holds $27.59 billion in securities linked to the US subprime residential mortgage market, down from $38.77 billion in September.
The fourth-quarter result, in line with the bank’s forecast at the end of January, compared with a net profit of 3.4 billion francs in the same period of 2006.
Switzerland’s largest bank said subprime losses pushed it into the red for the full year, the first annual net loss since 1997 when UBS was created from a merger of two major Swiss banks.
The net loss for the full year was $3.97 billion, compared with a profit of 12.26 billion francs in 2006.
“Last year was one of the most difficult in our history,” said Chief Executive Marcel Rohner. “While most of our businesses continued to be very profitable, the sudden and serious deterioration in the US housing market, in combination with our large exposure in subprime mortgage-related securities and derivatives, has driven us into (a) loss for the year.”
Analysts said the assessment was unsurprising but nonetheless discouraging.
“We still think further writedowns are likely in at least the first quarter, further impairing confidence and raising the risk of market share losses,” Deutsche Bank analyst Matt Spick said.
Moody’s Investors Service said the “disclosures highlight risk positions at the bank which could lead to further writedowns depending on market developments.”
“UBS continues to enjoy a very strong and diversified franchise with solid earnings capability in a number of areas outside the affected fixed-income franchise,” the rating agency said.
It added that the bank maintains excellent liquidity and good asset quality and said its capitalization levels should be restored to past high levels over a reasonable time frame.
The losses have resulted in spiraling write-downs totaling $18.4 billion so far and have forced UBS to seek $11.8 billion in fresh capital from Singapore’s government fund and an unnamed Middle East investor.
The two investors remain committed to the plan, despite a dramatic worsening in UBS’ prospects since the fresh capital was granted in December, UBS said.
Analysts were reluctant to forecast how much of the remaining exposure might still be written down in coming quarters because of the varying types and quality of securities UBS still holds. Bear Stearns analyst Chris Wheeler said Thursday’s earnings raise concerns future markdowns might be “major.”
The bank has fired numerous executives as a result of the losses, including Chief Executive Peter Wuffli, investment banking head Huw Jenkins and financial chief Clive Standish. Its shares have slumped 22% already this year on fears of even greater losses.
Analysts said they were reassured that UBS appears to be reducing its holdings of toxic securities.
Net new money inflows, a closely watched gauge of future revenue, was positive thus far in 2008, Rohner told a conference call.
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First Published: Fri, Feb 15 2008. 12 36 PM IST
More Topics: Switzerland | UBS | US | Subprime | Loss |