Swiss bank UBS AG took another hit yesterday as it announced a £5.7bn write-down, its first annual loss.
The bank expects full-year losses to amount to £2bn but analysts fear there may be greater losses ahead as the bank struggles to rid itself of bad debt held in the US.
UBS also said that the fourth quarter losses include about £6bn which related directly to positions held in the US sub-prime mortgage market and a further £1bn related to the US residential mortgage market, AP reported.
The crises for European banks deepened yesterday as French bank BNP Paribas SA also revealed expectations of a fourth-quarter 42% profit plunge during the second half of the year.
The continuing sub-prime woes indicate how much European lenders trusted in US mortgage issued to consumers with scant credit histories, bundled with other debt types, spliced and resold on the market.
High-profile bank analyst, Meredith Whitney, whose research notes triggered the resignation of Citigroup's chairman Charles Prince, has now predicted that investment banks will need to take a further £20bn write-down as a result of the crises in the bond insurance market.
'Among the myriad of negatives that surround financial stocks today, we see no issue more critical than the fate of the monoline insurers,' Whitney warned.
Monoline companies are defined because of the guarantee of the timely repayment of bond principal and interest when an issuer defaults.
Last October she warned that banks needed to raise fresh capital and that Citigroup, followed by Merrill Lynch and UBS would be hardest hit by a collapse in the monoline sector.
'The loss is higher than expected. The additional losses were especially disconcerting. This will probably lead to further uncertainty, ' said Zuercher Kantonalbank analyst, Andreas Venditti.
The bank failed to provide updates for £14.5bn in sub-prime holdings, which it revealed in December.
Further reading:
FBI launches probe into sub-prime accounting
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