UBS says $11.45 billion net loss expected in fourth quarter

30 January 2008

GENEVA – UBS AG said Wednesday it expects a record loss of around CHF12.5 billion for the fourth quarter, largely as a result of bad investments in US subprime mortgages.

Switzerland’s largest bank said the full-year net loss will amount to CHF4.4 billion – the first loss in its 10 year history. UBS was formed through the merger of Union Bank of Switzerland and Swiss Bank Corporation in 1998, resulting in the world’s largest wealth manager.

UBS earnings will be published on February 14.

“These results reflect weak trading revenues in the fixed income, currencies and commodities business in the investment bank,” UBS said in a statement. The numbers “will include around US$12 billion in losses on positions related to the US subprime mortgage market and approximately US$2 billion on other positions related to the US residential mortgage market,” it added.

Shares in UBS fell 1.5%to CHF46.10 in Zurich.

Analyst comment was mixed with some saying the bank could be forced to make further writedowns this year and others saying the news was to be expected.

“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,” he said.

UBS said in December that it had around US$29 billion in subprime holdings. The bank did not provide an update on its holdings Wednesday.

Peter Thorne, an analyst with independent brokerage Helvea SA, said the announced net losses are bad “but not a total shock.”

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

UBS in early December announced a US$10 billion writedown from the US subprime lending market, in addition to CHF4.2 written off in its third quarter. It then said it will post a loss for the fourth quarter and may record a full-year net loss.

The bank subsequently raised billions through share sales to sovereign wealth funds in Singapore and the Middle East. Government of Singapore Investment Corp injected CHF11 billion while an undisclosed investor in the Middle East purchased a CHF2 billion stake.

The capital injection will have to be approved in an extraordinary general assembly on February 27.

Some activist shareholders have indicated they intend to block the plans, which they claim favor two groups at the expense of existing shareholders. But analysts said a majority of shareholders were likely to approve the capital raise.