Afternoon:
9°c
UBS dives into red as crisis takes £9.3bn toll
Hugo Duncan, Evening Standard31 Jan 2008
UBS stunned the City today when it admitted that losses from the subprime mortgage meltdown had spiralled to $18.4 billion (£9.3 billion), plunging it deep into the red.
The firm, which has a large investment banking base at Broadgate and other offices across the Square Mile, said losses from exposure to toxic US home loans had deepened from the $14.5 billion it flagged only last month.
In today's surprise announcement - it was not due to update the market until 14 February - it said it now expected to make an overall loss of Swfr4.4 billion (£2 billion) in 2007, having indicated in early December that it "may" make a loss. Profits last year were Swfr11.5 billion.
Analyst Georg Kanders at WestLB said: "This is certainly not good. I had expected less."
The latest grim news piled further pressure on chairman Marcel Ospel, who has overseen the embarrassing decline. UBS is the hardest-hit European bank in the credit crisis. Its writedowns from subprime loans are third only to Citigroup and Merrill Lynch, and critics have called for Ospel's head.
The Zurich-based bank recently announced 1500 job cuts, the bulk of which will be in London. It has undergone severe management upheaval in the past year. Peter Wuffli was forced out as chief executive in July after a board-room rift, and Huw Jenkins, chairman and chief executive of the investment banking arm, was ousted over the sub-prime debacle. The group is struggling to restructure that arm under new chief executive Marcel Rohner. The losses have sent its shares plunging 40% in the past 12 months, and have prompted calls for it to spin off its investment banking business and concentrate on its highly successful wealth management activities.
UBS, like its rivals, was forced into emergency fund-raising with sovereign wealth funds late last year. It last month announced a Swfr13 billion injection from Singapore's GIC and a Middle Eastern investor.
It today said it will make a fourth-quarter net loss of Swfr12.5 billion - almost double analysts' expectations. UBS blamed weak trading revenues in the fixed income, currencies and commodities business at the investment bank, reporting fourth-quarter losses of $12 billion directly linked to the sub-prime mortgage market and $2 billion on "other positions" related to the US residential market.
More info...
The horrific UBS losses prompted immediate calls for a full investigation into why the company has become so much more exposed to the US subprime mortgage collapse than other European banks.
Dominque Biedermann, director of the Ethos Foundation in Geneva, which is a shareholder in UBS, said: "The damage is enormous. It wipes out profit and shows that an inquiry is needed to make sure it doesn't happen again, and eventually whose responsibility this is."
He called for a full independent audit of the bank's controls.
Local rival Credit Suisse, which reports its profits in 10 days, has signalled it does not have large writedowns to announce.
