UBS announces further write-down – £9bn to date

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,

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

UBS takes further $4bn hit on sub-prime

Investors blast credit crunch knowledge gap

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