Swiss bank UBS took a severe hit from the global credit crisis and Britain's Lloyds TSB suffered a glancing blow on Monday as investors counted down to an expected Federal Reserve rate cut to shore up the US economy.
UBS unveiled $10 billion in shock subprime write-downs and secured an emergency capital injection from a Singapore government entity and an unnamed Middle East investor.
The charge was one of the largest by any bank worldwide since the subprime crisis broke although others, such as Citigroup, Merrill Lynch, BankAmerica, HSBC and Barclays, have also announced multi-billion dollar write-offs.
UBS, which in October reported its first quarterly loss in five years after writing off $3.4 billion on subprime-related exposures, issued a profit warning and cancelled plans for a cash dividend.
Lloyds TSB, Britain's fifth biggest bank, said its underlying profits were on track to grow 11 per cent this year but would take a 200 million pound ($405 million) hit from exposure to credit market problems.
Lloyds said it was "firmly on track" to deliver a good performance with profits in line with market expectations.
European shares dived after the UBS report but dusted themselves off to trade up 0.5 per cent by 1145 GMT, as investors looked to the rescue package engineered by the Swiss bank, not the loss.
But analysts said only a fool would predict no further damage to markets, particularly in the banking sector.
"There has been a pause in the slump in banking shares as a lot of negative news have already been priced in, but we don't have the feeling that the bleeding is completely over," said Jean Claude Petit, head of equities at Barclays Wealth France.
With U.S. subprime mortgages -- lent to people ill-equipped to pay them back -- bundled up into complex financial products and sold on around the globe, uncertainty about where the exposure lies remains intense.
That has caused interbank lending to dry up.
London interbank offered rates for one-month dollars fell for a fourth day running on Monday but one-month euro and sterling rates rose.
ASIA, GULF TO THE RESCUE
The Singapore investment in UBS, which gives the Asian island-state a 9 per cent stake, was the latest rescue of a top western bank by a sovereign wealth fund, after the Abu Dhabi Investment Authority bought a $7.5 billion stake in Citigroup.
"It's a developing trend. Asian and Middle Eastern sovereign investors are cash rich and have a longer time horizon than the average market investor," said Omar Fall, an analyst at ABN AMRO in London.
Market moves are expected to be limited ahead of the Federal Reserve's latest interest rate decision on Tuesday, now widely tipped to deliver a quarter point cut after a robust US jobs report on Friday doused expectations for a half point reduction.
A Reuters survey of 17 US primary dealers, the firms that trade directly with the Fed, found all of them now counting on the Fed to cut the benchmark federal funds rate by 25 basis points to 4.25 per cent -- its third since the credit crunch bit.
Britain and Canada cut rates last week but the European Central Bank refused to follow suit and shows no sign of doing so soon.
ECB Governing Council member Erkki Liikanen said on Monday financial market turbulence had damaged the euro zone's growth outlook but there were strong upward inflation pressures.
German banks have also suffered considerable pain since the credit crisis hit in August.
WestLB's owners will gather again next week to consider whether to keep the money-losing bank independent or merge it with another bank.
WestLB, which is suffering from the credit crisis on top of a series of trading losses this year, warned this week that 2007 losses would amount to hundreds of millions of euros. (REUTERS)