Subprime debacle drives UBS into $3.5-bn loss in 2007
Swiss banking giant UBS on Wednesday posted its first-ever full-year loss after losing billions in the US mortgage crisis and turning to Asian investors for a bail-out, sparking shareholder discontent.
UBS said it would report a full-year loss of $3.5 billion for 2007 owing to its exposure to the US subprime crisis.
In the fourth quarter alone, UBS posted a net loss of 12.5 billion Swiss francs, the bank said in a statement.
Subprime losses amount to about $12 billion, with the loss of a further $2 billion attributable to other aspects of the US housing market, the bank said.
The bank had already said a full-year loss was likely after dismal third-quarter results, when it put its subprime exposure at $10 billion.
Credit Suisse banking analyst Christine Schmid said she was not surprised at the additional $2billion in subprime provisions, but the further $2billion losses from other areas of the US housing market gave cause for concern.
"There might be further provisions but clearly at a lower magnitude" in the months ahead, she told AFP.
UBS still has about $25 billion worth of exposure to the US housing market, Schmid noted.
Citigroup analysts agreed that more writedowns are likely to come, adding that both the fourth quarter and full year results were too opaque to gain much sense of the health of UBS's business.
"It is unclear what hedging/compensation/tax offsets are involved (in the results), so we cannot tell how the operating businesses have fared, and the company provides no comment," the analysts said in a note.
They remained cautious on the shares, saying that "with risks of further markdowns beyond today's profit warning ... the recently-bolstered capital base remains vulnerable to further erosion."
UBS had warned earlier this month that 2008 would be a difficult year owing to the fallout from the subprime crisis and turmoil on global financial markets.
"We cannot, at this time, accurately predict the future development of US residential mortgage markets and therefore the ultimate impact on our positions in subprime mortgage-related securities," the bank said in a letter to shareholders.
The US economy has been hit by a downturn in the property market that has exposed banks to billions of dollars of losses and caused a general tightening of credit to businesses and consumers.
In December UBS turned to Singapore's state invesment arm (GIC) and an unnamed Middle Eastern investor to help restore its balance sheet.
GIC said it would inject 11 billion Swiss francs into UBS, giving it a stake of around nine percent and thus making it the largest single shareholder, while the Middle Eastern investor was to put up two billion Swiss francs.
Some shareholders have voiced unhappiness with the plans to raise funds from foreign, state-controlled investment authorities, fearing the terms of the deal put existing investors at a disadvantage.
Shareholders are set to vote on the deal at the bank's annual general meeting on February 27.
"The statement may have been made in view of the upcoming AGM, in order to enhance their case and convince shareholders that the bank urgently needs the money, given recent signs of resistance towards UBS' plans," a Zurich-based trader said.
Credit Suisse analyst Schmid said this may have played a role, but "given the market situation they didn't have a choice" but to reveal the losses.
The AGM "will be a long and difficult one for the management," she said.
The bank will announce its 2007 results in full on February 14 as originally planned.
UBS shares closed down 1.6 per cent at 46.06 Swiss francs while the SMI index on the Zurich stock exchange ended the day 0.42 per cent in negative territory at 7,671.81 points. (AFP)
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