UBS unveils $12B loss, write-downs of $19 billion; Chairman Marcel Ospel steps down
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By ONNA CORAY
Associated Press Writer
ZURICH, Switzerland (AP) — Swiss bank UBS AG on Tuesday reported more serious damage from exposure to the U.S. subprime crisis, saying it would post first-quarter losses of $12.1 billion and that it would seek $15.1 billion in new capital.
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UBS Chairman Marcel Ospel said he would resign as Switzerland’s largest bank expects write-downs of approximately $19 billion tied to U.S. real estate and related credit positions in the first quarter.
UBS write-downs have reached a staggering $40 billion in the past nine months, the largest reported by any bank to date.
With word Tuesday that Germany’s largest bank would write down about $4 billion on subprime exposure, it was the latest indication of how far the severe plunge in U.S. housing prices and a credit crisis triggered by rising mortgage defaults has reached.
With the bank reaching out for additional capital, UBS shares rose sharply, trading up 6.51 percent at 30.74 francs ($30.92) in Zurich. Traders said investors welcomed the capital hike and the departure of Ospel.
"I have always stated that I ultimately take responsibility for the bank’s situation," Ospel said.
"My willingness to stand for re-election for a further one-year term was based on my desire to lead UBS out of its current difficult situation," Ospel said. "We have worked very hard and have been able to address the firm’s most pressing problems, thereby laying the foundation for the long-term success of the bank."
The bank said its move to raise capital through a rights issue that would be fully underwritten by four leading international banks and would enable it to remain "one of the world’s strongest and best capitalized banks."
"In the first quarter, UBS substantially reduced its real estate related positions through both valuation adjustments and significant disposals," the bank said.
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It said it would create a new unit to "hold certain currently illiquid U.S. real estate assets."
"UBS is confident that these measures will deal effectively with the firm’s real estate exposures and allow the bank to focus on strengthening its core operations," the statement said.
Chief Executive Marcel Rohner said, "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."
He said profits from most of the bank’s businesses "remained acceptable in challenging conditions" during the first quarter.
"We have made further prompt writedowns and sales of our impaired U.S. real estate-related positions," Rohner said. "We have reduced risk weighted assets and implemented measures to control costs and strengthen the structure of the firm."
However, he said, UBS wants to avoid selling 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," Rohner said.
The measures show the bank continues to trim risky assets. The bank said its exposure to U.S. subprime mortgage related positions declined to approximately $15 billion from $27.6 billion on Dec. 31.
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The exposure to Alt-A positions — which are less risky than subprime loans — was reduced to $16 billion (10.1 billion euros) from $26.6 billion, it said.
The efforts at minimizing exposure will be accompanied by an undisclosed number of job cuts and a further tightening of risk.
The measures mean that UBS is now a restructuring stock, analysts at JP Morgan wrote in a note to investors.
"We conclude UBS is aiming to put a line below its risk-exposure problem and refocus on operational business," JP Morgan’s Kian Abouhossein said.
But Octavio Marenzi, head of financial consultancy Celent, said the UBS disclosures were "a clear indication that we are not out of the woods yet in terms of the credit crisis."
"Indeed, the storm clouds are gathering ever more rapidly over the banking industry and, in particular, the U.S. banking industry, where most of UBS’s losses originated from," Marenzi said.
He predicted the U.S. banking industry is set to see its first contraction in overall revenues in more than forty years. "This will inevitably lead to staff reductions, and we expect to see the U.S. banking industry shed about 200,000 jobs in the coming 12 to 18 months," Marenzi said.
Earlier this year UBS posted a 12.45-billion franc loss for the fourth quarter of 2007, after writing down 15.6 billion francs tied to U.S. subprime mortgages, and said it expected another difficult year ahead.
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The bank posted a net loss of 4.38 billion francs for 2007, its first annual loss.
