Swiss Bank UBS Reported Q3 Loss Amid US Mortgage Subprime Crisis
The Swiss Bank UBS reported its first quarterly loss in five years on Tuesday as a result of bad investments tied to subprime mortgages in the United States. And although it also predicted a return to group profits in the fourth quarter, the news left analysts uneasily considering the likelihood of further big write-offs.
Marcel Rohner, who became chief executive of UBS four months ago, said the third quarter was “unquestionably disappointing.” The bank posted a net loss of 830 million Swiss francs ($716 million), in contrast to a net profit of 2.2 billion francs a year earlier.
The result reflected a loss of 3.68 billion francs at the bank’s securities unit because of subprime investments.
Despite the positive fourth-quarter outlook, UBS warned that its fixed-income business “remains exposed to further deterioration” in the American housing and mortgage markets. UBS said it did not expect its investment bank to return to profitability in the last three months of the year.
Christopher Wheeler, an analyst at Bear Stearns in London, said he expected more bad news. “I don’t think everything is done and dusted,” he said. “They are going to take a big hit in the fourth quarter.”
Shares of UBS closed at $53.11 on the New York Stock Exchange.
Fears that other European banks may follow UBS in marking down debt securities helped hurt the euro against the dollar on Tuesday as well, ending a five-day climb.
Subprime losses at UBS overshadowed healthy growth in other areas of the bank’s business.
Its wealth management operations, the world’s biggest, attracted 40.2 billion francs in new money and generated net profit of 2.4 billion francs. Equity underwriting and corporate advisory services delivered big gains in net fee and commission income.
But the big concern for UBS remains the extent of its exposure to the shaky housing market in the United States.
UBS reported that it had $16.8 billion invested directly in residential mortgage-backed securities and $20.2 billion worth of supersenior securities, which are paid back ahead of other similarly rated securities in the case of a default.
In a conference call with analysts, Mr. Rohner declined to speculate on the possibility of further write-downs other than saying “the range of possible outcomes is widening.”
Mr. Wheeler, the Bear Stearns analyst, predicted that UBS would have to make further write-downs of $1.5 billion to $2 billion in the fourth quarter. “A large chunk of fourth-quarter earnings are going to get wiped out,” he said.
Analysts also questioned whether UBS had been aggressive enough in dealing with its exposure to the American housing and mortgage market, comparing its response unfavorably with that of Merrill Lynch, which last week wrote down $8.4 billion, its biggest loss ever.
UBS had twice the exposure of Merrill but had marked down barely half as much, said Kinner Lakhani , an ABN Amro analyst. “The impression they left the market at the start of the month was that we were unlikely to see further major markdowns,” Mr. Lakhani said, but the third-quarter results did not “leave a high level of confidence that this is it.”
Mortgage Woes Push UBS to Its First Loss in 5 Years
By NICK CUMMING-BRUCE | New York Times