UBS and Merrill issue new alerts over subprime hits

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Merrill, which reports final-quarter figures next Thursday, is now likely to suffer losses of $15 billion (£7.7 billion), according to the New York Times. That is far higher than the $11.5 billion most analysts had been expecting.

The US bank is also in final talks with a variety of investors including sovereign wealth funds to raise an extra $4 billion in new capital.

UBS today wrote to shareholders explaining its need for an injection of $11.8 billion of new funds, largely from the Singapore government and an unnamed Middle Eastern investor.

Chief executive Marcel Rohner and chairman Marcel Ospel said: "We cannot at this time accurately predict the future development of the US residential mortgage markets and therefore the ultimate impact on our positions in subprime mortgage related securities.

"However, we are confident that, after the proposed capital improvement, our capital position would remain strong even if conditions in the US housing market were to continue to deteriorate to levels below those that are currently anticipated."

They added: "The problems the financial industry faces have not evaporated with the turn of the year, and 2008 is likely to be another generally difficult year. We need to manage through this period from a position of financial strength."

Rohner and Ospel also revealed that UBS had considered raising money through a massive rights issue but rejected that because it could take too long and would be complicated.