UBS today suffered heavy losses after it was hit by massive credit crunch writedowns and rich clients withdrew billions from its key wealth management division.

The Swiss giant, Europe's hardest-hit victim of the banking crisis, posted losses of Swfr358 million (£173 million) for the second quarter, compared with profits of Swfr5.55 billion in the same period last year.

Following its fourth consecutive quarterly loss, the bank unveiled plans to split the business into three separate units on criticism of its one-bank strategy and pressure from investor Olivant to hive off investment banking.

UBS, led by chairman Peter Kurer and chief executive Marcel Rohner, will give its investment banking, wealth management, and global asset management divisions greater independence in a move which analysts believe could trigger a break-up.

With half-year losses at Swfr11.89 billion, Kurer said: “In the second half of this year, UBS does not expect to see any improvement in the adverse
economic and financial market trends that affected this quarter's results. UBS will continue to reduce personnel
levels, costs and risk.”

UBS was forced to write down a
further $5.1 billion (£2.7 billion) on investments in the toxic US mortgage market on top of the $37 billion it has already lost.

The bank, under fire from regulators in Europe and the US, was also rocked by heavy outflows in its wealth management business of Swfr17.3 billion — the first time rich clients have removed more than they added in eight years. The global asset management business haemorrhaged Swfr24.5 billion. As well as fighting calls for the group's break-up, UBS has also had to defend its conduct throughout the crisis.

Last week, it agreed to buy back almost $19 billion of bonds after New York State and others sued it for steering clients towards auction-rate securities — debt which became impossible to sell after the market froze. UBS said this would cost it $900 million.

UBS is also under fire from US Congressional investigators, who say the bank helped US clients dodge taxes.

Rohner faces pressure to cut costs and has announced plans to cut 5500 jobs. UBS today said it has reduced its headcount by 2387 to 81,452 since the end of March.