Eat this, GIC Special Situations Group!
Swiss bank UBS reports huge loss after subprime debacle
22 hours ago
ZURICH (AFP) — Swiss banking giant UBS plunged to its first-ever full-year net loss on Thursday after losing 18 billion dollars in the US subprime mortgage crisis.
Bank chairman Marcel Rohner said the losses were “unacceptable”.
UBS revealed a net loss of 4.4 billion Swiss francs (4.0 billion dollars, 2.7 billion euros) in 2007, compared to a profit of 12.3 billion Swiss francs in 2006.
“We are obliged to confirm these unacceptable results,” Rohner told a telephone conference on the figures.
“While most of our businesses continued to be very profitable, the sudden and serious deterioration in the US housing market, in combination with our large exposure in sub-prime mortgage-related securities and derivatives, has driven us into loss for the year,” he said.
Analysts said the losses were in line with expectations as UBS had already said two weeks ago it would post a full year loss of around four billion francs.
Helvea analyst Peter Thorne warned that UBS is less attractive to investors than its rival Credit Suisse, which on Tuesday announced full year profits of 8.5 billion Swiss francs after limiting its subprime exposure.
UBS’s balance sheet “remains a worry for investors,” the London-based analyst said.
“Our preference for betting on a recovery in financials is with Credit Suisse where exposures are lower and known, and management has for more credibility,” Thorne added.
In the fourth quarter alone, UBS lost 12.45 billion Swiss francs against a profit of 3.4 billion francs in the same period a year earlier.
“Last year was one of the most difficult in our history,” Rohner said.
In the fourth quarter, writedowns linked to the US housing market amounted to 13.7 billion dollars.
For the year as a whole, its exposure was 18.1 billion dollars, making UBS the third-worst hit bank after Wall Street giants Merrill Lynch, with 19.4 billion dollars, and Citigroup 21.1 billion dollars.
UBS said it expected 2008 to be “another difficult year” given plunging stock market values and growing fears of a recession in the United States.
However, the bank’s chief financial officer Marco Suter said there were unlikely to be any more “big surprises” with regard to subprime writedowns.
“We are not expecting any new major surprises and we are continuing to reduce (subprime exposure) in January and February,” he told reporters.
“We were clearly over-exposed in the high-risk US housing sector and ill prepared” for the financial crisis, Suter admitted.
UBS acknowledged that part of its market risk control framework proved inadequate as the subprime crisis gathered pace in the second half of 2007 but said it has taken steps to improve its oversight systems.
In December, UBS turned to Singapore’s state invesment arm (GIC) and an unnamed Middle Eastern investor to help restore its balance sheet.
GIC said it would inject 11 billion Swiss francs into UBS, giving it a stake of around nine percent and thus making it the largest single shareholder, while the Middle Eastern investor was to put up two billion Swiss francs.
Some shareholders have voiced unhappiness with the plans to raise funds from foreign, state-controlled investment bodies, fearing the terms of the deal could put existing investors at a disadvantage.
UBS’ share price has taken a pummelling in recent weeks and Thursday was no exception.
The bank’s shares were down 7.76 percent at 37.68 Swiss francs in late afternoon trade on the Zurich stock exchange, bucking an otherwise positive market trend.