UBS Says 3Q Loss Could Hit $690M

Losses linked to the collapsing market for U.S. subprime mortgages will force Swiss banker UBS to post a larger-than-expected loss of up to $690 million in the third quarter, cut nearly 2 percent of its staff and replace top executives.

Zurich-based UBS said Monday it will also write down the value of some assets by $3.4 billion because of the subprime mortgage crisis and that its job cuts involve about 1,500 positions.

Chief Executive Marcel Rohner said he would take over as investment banking chief, replacing Huw Jenkins, who will step down to become an adviser. In addition, Chief Financial Officer Clive Standish will retire.

"UBS operates on the principle that management is accountable to shareholders," said Rohner, who was promoted from deputy CEO in July after the departure of former chief executive Peter Wuffli. "These events have led to the management changes announced today."

Analysts said they were shocked by the severity of the company's exposure, even as they welcomed its openness about the potential 800 million Swiss franc loss. UBS shares initially fell nearly 4 percent but rebounded to be down 1.6 percent at $52.95 in Zurich.

UBS joins several other European banks who are being hurt by rising defaults in the United States market for subprime mortgages, or home loans to borrowers with tainted or weak credit. Before the crisis, those loans were routinely repackaged with other debts and sold to investors.

Credit Suisse, UBS' rival, said Monday that its investment banking and asset management results had been hurt "by recent market events," but gave no specific figure and said it still expects third-quarter profit of at least $860 million.

UBS, which has extensive operations in the United States, said its global wealth management and business banking and global asset management businesses "continue to record good results," despite the losses in the investment bank.

The bank said its writedowns involve fixed income, rates and currencies from its now closed Dillon Read Capital Management business and subprime mortgage investments. The bank closed down its Dillon Read Capital Management hedge fund in May with a total pretax loss of 348 million francs because liabilities from trading mortgage securities were weighing on its fixed-income revenue.

UBS said its overall pretax loss for the third quarter is likely to range between $515 million to $690 million.

Rohner said that when UBS announced second-quarter results in August he said that the bank could expect a "very weak trading result in the investment bank" if tumultuous conditions prevailed throughout the quarter.

"In fact, conditions remained turbulent, so we will make an overall pretax loss at group level for the quarter," he said.

However, UBS' pretax profits will reach about $8.6 billion for the first nine months of 2007, the company said.

Claudia Meier, an analyst at Zurich private bank Vontobel, said the magnitude of the writedowns announced Monday far exceeded expectations.

Dirk Becker of Kepler Equities agreed, but said the worst of UBS' troubles may now be over. "Now at least we know," he said, referring to the problems UBS had flagged in recent weeks.

The Swiss banking regulator, meanwhile, said there was no reason for UBS' banking clients to be concerned, despite the warning of a third-quarter loss.

UBS shareholder equity is very high, and the bank's liquidity is good, spokesman Alain Bichsel told The Associated Press. The Swiss Banking Commission had been in touch with UBS for some time, and was informed about the loss related to the U.S. subprime mortgage problems, he said.