UBS Racks Up CHF12bn First Quarter Loss

by Carla Johnson, Investors Offshore.com

03 April 2008

Swiss bank UBS expects to report a net loss of approximately CHF12bn (USD11.86bn) for the first quarter of 2008, after investments in the US property and credit markets turned sour.

On April 1st, the bank announced losses and writedowns of approximately USD19bn on US real estate and related structured credit positions.

In an attempt to maintain its position as "one of the world's strongest and best capitalized banks", UBS revealed that it was announcing a rights issue, fully underwritten by four leading international banks, to raise approximately CHF15bn.

UBS says that it has substantially reduced its real estate-related positions through both valuation adjustments and significant disposals.

It has also formed a new unit to hold certain currently illiquid US real estate assets, and this will, initially, be wholly-owned and financed by UBS itself.

The bank also announced a changing of the guard in its senior management, with current chairman Marcel Ospel having revealed his intention not to seek re-election at the Annual General Meeting on April 23rd, 2008. Peter Kurer, currently General Counsel of UBS, is proposed for election to the board, and will replace Ospel as chairman.

Commenting on the moves, Marcel Rohner, Chief Executive Officer of UBS, stated that:

"We believe this capital increase and the creation of a vehicle to separate problem assets from the remainder of our businesses will allow us to return to sustainable value creation over time. These measures enable UBS to remain strongly capitalized and focused on client needs – just as our clients expect."

He continued: "During the quarter, profits from most of the businesses remained acceptable in challenging conditions. We have made further prompt writedowns and sales of our impaired US real estate-related positions. We have reduced risk weighted assets and implemented measures to control costs and strengthen the structure of the firm."

"However, the environment remains difficult, and while we are committed to further substantially reducing our exposures we do not want to undertake sales of positions at severely distressed levels."

"With these measures we have created the basis to weather one of the most difficult periods in the history of the industry."

The Q1 2008 figures include pre-tax results of approximately CHF2.1bn from global wealth management and business banking, and a weaker pre-tax performance of approximately CHF0.3bn in global asset management.

For the first quarter, global wealth management and business banking expects to have achieved positive net new money. Global asset management expects to report net new money outflows.

The Investment Bank however, is expected to record a pre-tax loss of approximately CHF18bn. This includes the aforementioned writedowns and losses of approximately USD19bn on US real estate and credit positions.

According to the bank, equities and investment banking results were satisfactory, albeit down from both first quarter 2007 and fourth quarter 2007.

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