UBS Falls to Four-Year Low After Posting Record Loss

Feb. 14 (Bloomberg) -- UBS AG fell to a four-year low in Swiss trading after the U.S. subprime mortgage crash led to a record loss and Chief Executive Officer Marcel Rohner declined to predict whether the bank will return to profit this quarter.

Europe's largest bank by assets fell as much as 7.9 percent after reporting a fourth-quarter loss of 12.5 billion Swiss francs ($11.3 billion). Zurich-based UBS took $13.7 billion in writedowns on securities infected by subprime mortgages.

``Further writedowns are likely in at least the first quarter, further impairing confidence and raising the risk of market share losses,'' said Matt Spick, an analyst at Deutsche Bank AG, in a note today. He lowered his recommendation on the stock to ``hold'' from ``buy.''

Rohner, speaking on a conference call with journalists, described the results as ``unacceptable'' and said 2008 will be ``another difficult year.'' Rising U.S. subprime-mortgage defaults have led to more than $145 billion in writedowns and loan losses at the world's biggest financial companies.

UBS fell 2.22 Swiss francs, or 5.4 percent, to 38.64 francs by 1:18 p.m. The stock slumped 39 percent in the past six months, making it the fifth-worst performer in the 60-member Bloomberg Europe Banks and Financial Services Index.

Subprime Writedowns

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.

The bank still had about $27.6 billion of positions linked to the U.S. subprime residential mortgage market at the end of the year, down from $38.8 billion on Sept. 28, UBS said. In addition, it reported positions totaling $26.6 billion in Alt-A mortgages, $3.8 billion of subprime-related assets through its reference-linked notes, and $2.9 billion in exposure to credit insurers.

The Group of Seven nations estimates that subprime-related markdowns may swell to $400 billion across the industry, 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.

Wealth Management

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. Clients added a net 31.5 billion francs at the wealth management unit in the fourth quarter.

``The writedowns, even though huge, were flagged,'' said Florian Esterer, who helps oversee $56 billion at Swisscanto Asset Management in Zurich, including UBS shares. ``So far the impact on wealth management remains relatively small.''

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. The equities business posted a 5 percent increase in revenue to 2.7 billion francs in the quarter, while revenue from the fixed income, currencies and commodities division was negative 15.5 billion francs. Proprietary trading revenues fell because of ``market dislocation'' across all regions.

Investment Banking Chief

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

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, which controls Europe's biggest securities firm 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

Credit Suisse Group, Switzerland's second-biggest bank, said on Feb. 12 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.

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, 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. Chief Financial Officer Marco Suter said today that those investors are firmly behind their commitment.

``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.

UBS was created in 1998 by the merger of Swiss Bank Corp. and Union Bank of Switzerland. Swiss Bank was established in 1854.

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.