Credit crunch misery deepens for UBS

Photograph: Fabrice Coffrini/AFP

UBS has underlined its status as one of the biggest losers in the credit crunch by announcing £5.1bn of fresh writedowns and its fourth quarterly loss in a row.

The Swiss bank said this morning that it made a net loss of 358m Swiss francs (£173m) in the second quarter of this year. The loss was caused by its continuing exposure to the US housing market, and a huge outflow of funds as wealthy individuals took their money elsewhere.

The new writedowns push UBS’s total since the crisis started to $42bn, bringing it closer to Citigroup ($47bn) and Merrill Lynch ($46bn).

The damage caused by the ongoing sub-prime crisis also appears to have spread beyond UBS’s investment bank to other divisions, with a total of SFr43.8bn leaving the business, leaving it with SFr2.7 trillion under management.

UBS also said it had set aside $900m to cover the cost of settling legal action brought by US investors who claimed they were wrongly sold auction-rate securities before the market collapsed.

Although the bank cut its operating costs by 18% in the quarter, partly by slashing thousands of jobs, it does not expect to see an upturn soon. Instead it issued a grim warning that the rest of 2008 will be just as tough as the last six months

“The positive sentiment seen at the end of first quarter 2008 that the credit crisis may be easing was short-lived, as trading conditions deteriorated significantly in the second half of May, in particular for assets related to US residential real estate as well as other structured credit positions,” said UBS, in a sign that the credit crunch still has some way to run.

Shares in the bank fell by 3% in early trading.

In an attempt to recover its fortunes, UBS is splitting its private banking, investment banking and asset management arms into three separate divisions.

Its global asset management arm saw a net reduction of SFr24.5bn in funds under management to SFr757bn, while its wealth management business suffered outflows of SFr17.3bn. Another SFr2bn moved out of the Swiss business banking operation. Analysts said this was a sign that UBS’s reputation has suffered serious damage, following its massive loss of SFr11.5bn in the first quarter of this year and the departure of chairman Marcel Ospel.

It has also appointed a British accountant, John Cryan, as its new chief financial officer. He currently runs the financial institutions division within its investment bank.

Last week, UBS agreed to pay a fine of up to $150m and reimburse customers to the tune of nearly $19bn (£10bn) to compensate for the alleged mis-sale of auction-rate securities. This deal was hammered out with US regulators, who investigated claims that investment banks acted wrongly by encouraging customers to buy the securities, which are currently almost unsellable.

The $900m UBS has set aside to cover the costs of this settlement reflect the fact that the securities market will eventually , allowing the financial instruments to be sold again.

Graeme Wearden
Tuesday August 12 2008 08:41 BST

Source: The Guardian

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