UBS bank battered by sub-prime write downs

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Investment bank UBS posted a loss of between CHF 600m and CHF 800m (£334.4m)
for the third quarter of 2007 yesterday, as it felt the impact of the credit

The loss, the bank’s first quarterly loss for nine years, came as it was
forced to show negative revenues of CHF 4bn in its fixed-income business.

‘When most mortgage-backed securities positions were set up there were
offsetting positions in place, designed to mitigate risk in normal market
conditions. However, the deterioration in the US sub prime residential
mortgage-backed securities market, especially in August, was more sudden and
more severe than in recent history, and markets became illiquid,’ said UBS in a

The bank added: ‘This led to substantial valuation losses, including in
securities with high credit ratings. Management action has been taken to make
certain these positions are appropriately valued and risk managed.’

The Swiss group also revealed that it had been forced to mark-to-model
certain securities as a result of markets freezing up. The bank said it had
taken a cautious view on its valuations and was comfortable holding the
securities at the calculated valuations.

UBS is the first European investment bank to reveal the aftermath of the
credit crisis. A number of US banks have already reported Q3 numbers and taken
hundreds of millions of pounds in write downs.

The Q3 banking numbers have been keenly watched by markets, with investors
and analysts looking for information on the extent of the sub-prime crisis and
trying to unravel the valuation models used to value securities when markets are
locked up.

Further reading:

the full UBS Q3 results

Further writedowns expected for US

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