UBS Writes Off $19B In Losses

The headquarters of the Union Bank of Switzerland (UBS) in Zurich, Switzerland, is seen in this 1999 file photo. Swiss bank UBS AG said Tuesday, April 1, 2008, it expects to post first quarter net losses of 12 billion Swiss francs (US$12.1 billion; euro 7.65 billion) and will seek 15 billion Swiss francs (US$15.1 billion; euro 9.55 billion) in new capital. Chairman Marcel Ospel will not seek re-election at the April 23 annual general assembly of shareholders and will be succeeded by Peter Kurer, who is currently general counsel, the bank said in a statement. (AP Photo/Keystone, Martin Ruetschi)
AP
Swiss bank UBS AG on Tuesday reported more serious damage from the U.S. subprime crisis, saying it would post a first-quarter net loss of $12.1 billion and seek $15.1 billion in new capital.

Switzerland's largest bank also said it sees losses and writedowns of approximately $19 billion in the first quarter on U.S. real estate and related credit positions.

That puts its writedowns for the past nine months to $40 billion, so far the largest reported by any bank.

Chairman Marcel Ospel, who had previously indicated he wanted to stay on for another year, announced that he would step down, making him the latest victim of the crisis at UBS, which last year let other top executives go.

The disclosures represent the latest fallout in Europe from a U.S. economic crisis stemming from the plunge in housing prices and the credit crunch triggered by rising defaults on risky mortgages.

The bank's share price rose sharply, trading up 6.51 percent to 30.74 francs (US$30.92; euro19.55) on the Zurich exchange. Traders said investors welcomed the capital hike and the departure of Ospel as a chance to make a fresh start.

"I have always stated that I ultimately take responsibility for the bank's situation," Ospel said in announcing that he is pulling out of the election at the April 23 general assembly of shareholders to make way for general counsel Peter Kurer to take charge.

"My willingness to stand for re-election for a further one-year term was based on my desire to lead UBS out of its current difficult situation," Ospel said. "We have worked very hard and have been able to address the firm's most pressing problems, thereby laying the foundation for the long-term success of the bank."

The bank said its move to raise capital through a rights issue that would be fully underwritten by four leading international banks and would enable it to remain "one of the world's strongest and best capitalized banks."

"In the first quarter, UBS substantially reduced its real estate related positions through both valuation adjustments and significant disposals," the bank said.

It said it would create a new unit to "hold certain currently illiquid U.S. real estate assets."

"UBS is confident that these measures will deal effectively with the firm's real estate exposures and allow the bank to focus on strengthening its core operations," the statement said.

Chief Executive Marcel Rohner said, "We believe this capital increase and the creation of a vehicle to separate problem assets from the remainder of our businesses will allow us to return to sustainable value creation over time."

He said profits from most of the bank's businesses "remained acceptable in challenging conditions" during the first quarter.

"We have made further prompt writedowns and sales of our impaired U.S. real estate-related positions," Rohner said. "We have reduced risk weighted assets and implemented measures to control costs and strengthen the structure of the firm."

However, he said, UBS wants to avoid selling at "severely distressed levels."

"With these measures we have created the basis to weather one of the most difficult periods in the history of the industry," Rohner said.

The measures show the bank continues to trim risky assets. The bank said its exposure to U.S. subprime mortgage related positions declined to approximately $15 billion from $27.6 billion on Dec. 31.

The exposure to Alt-A positions - which are less risky than subprime loans - was reduced to $16 billion from $26.6 billion, it said.

The efforts at minimizing exposure will be accompanied by an undisclosed number of job cuts and a further tightening of risk.

The measures mean that UBS is now a restructuring stock, analysts at JP Morgan wrote in a note to investors.

"We conclude UBS is aiming to put a line below its risk-exposure problem and refocus on operational business," JP Morgan's Kian Abouhossein said.

But Octavio Marenzi, head of financial consultancy Celent, said the UBS disclosures were "a clear indication that we are not out of the woods yet in terms of the credit crisis."

"Indeed, the storm clouds are gathering ever more rapidly over the banking industry and, in particular, the U.S. banking industry, where most of UBS's losses originated from," Marenzi said.

He predicted the U.S. banking industry is set to see its first contraction in overall revenues in over forty years. "This will inevitably lead to staff reductions, and we expect to see the U.S. banking industry shed about 200,000 jobs in the coming 12 to 18 months," Marenzi said.

Earlier this year UBS posted a 12.45 billion franc loss for the fourth quarter of 2007, after writing down 15.6 billion francs in bad investments from U.S. subprime mortgages, and said it expected 2008 to be another difficult year.

The bank also had posted a net loss of 4.38 billion francs for the full year, its first annual closing in the red.

"Sadly this is no April Fool's joke," said analysts at Zuercher Kantonalbank.