UBS Posts Loss After $14 Billion Writedown

$14 billion? I thought I’d be inured to big negative numbers coming from investment banks by now, but I caught my breath when I read the headline of the Bloomberg story reporting that UBS is taking a further $14 billion in writedowns, resulting in a $11.4 billion loss for the fourth quarter.

Remember, when UBS and Deutschebank had taken third third quarter markdowns, they were seen as aggressive. The stock market even staged a rally believing that the financial institutions were putting their problems behind them. My, don’t those ideas seem quaint now?

Indeed, when UBS announced its 3Q writedown of $4.7 billion, it forecast a profit for the fourth quarter. On December 10,
the bank announced that it planned to write off $10 billion for fourth quarter. It also intended to shore up its balance sheet by selling $11.5 billion (SFr 13 billion) of convertible bonds to the Government of Singapore Investment Corporation and an unnamed Middle Eastern investor, along with some other measures to boost equity.

Note that UBS was not a top player in structured credit origination. This turn of events does not bode well for earnings season among investment banks.

As Bloomberg reports:

UBS AG, Europe’s largest bank by assets, reported a record loss after about $14 billion of writedowns on assets infected by subprime mortgages in the U.S.

The fourth-quarter net loss of 12.5 billion Swiss francs ($11.4 billion) will result in a full-year loss of about 4.4 billion francs, the Zurich-based bank said today in an e-mailed statement. The fourth-quarter loss was almost double what analysts surveyed by Bloomberg were estimating. UBS plans to publish its official financial results on Feb. 14.

UBS posted its first annual loss since the company was created through a merger a decade ago, and the fourth-quarter loss was bigger than the record declines reported earlier this month by Citigroup Inc. and Merrill Lynch & Co. The collapse of the U.S. subprime mortgage market has led to more than $130 billion of losses and markdowns at securities firms and banks since June.

UBS reported about $12 billion of losses directly linked to the subprime market and an additional $2 billion for positions related to the U.S. residential market. The company said its so- called Tier 1 capital ratio, a measure of financial strength, was 8.8 percent as of Dec. 31.

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One comment

  1. v

    Wow YS, when do you sleep? Posting updates at 2:05am? If this is the type of hours a big finance MBA must maintain, maybe I should go after the JD instead, lol, j/k.

    Seriously though, it seems this UBS (and even BNP) earnings report is, indeed, quite startling (though perhaps not unexpected to those of us reading this blog and others like TBP, CR, etc).

    Actually I now realize I have a monoline question for you, but perhaps it is better suited if I ask it in the next post which is on the monolines, lol. Sorry for all the confusion.

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