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UBS Shares Wobble on Subprime Concerns

Reuters
Tuesday, 20 Nov 2007 | 7:28 AM ET

Shares in Swiss-based bank UBS tumbled temporarily on Tuesday on renewed fears the group may have to make more hefty writedowns for exposure to assets hit by the subprime crisis.

Rumors also swirled in Zurich that UBS, which ranks eighth in the FTSE Global Banks index by market value, might be forced to cut its dividend, or even resort to a capital increase to protect its Tier 1 capital as a result of any writedown.

UBS shares fell as much 3.6 percent in morning trade to 48.70 Swiss francs, a level not seen since June of 2005, but the shares had recovered and were trading 0.2 percent up at 50.70.

"Although UBS confirmed again last week that it would have a profitable fourth quarter, rumors are growing today again about a further writedown worth $9 billion," said analysts at Vontobel in a note.

At the height of the morning frenzy, trading in UBS stock was briefly stopped by the automatic trading system after a sharp fall between two bids.

"It's automatic. If you have a very strong fall between two bids, it's stopped automatically so that other market makers can come in again," said a spokeswoman at UBS.

"It's not something like the stock exchange suspending trading of UBS shares," the spokeswoman added.

UBS shares have been under relentless pressure since revelations surfaced in May of big losses stemming from big exposures to subprime-related structured products and collateralized debt obligations (CDOs).

The bank announced its first quarterly group loss in five years at the end of October after 4.4 billion Swiss francs ($3.94 billion) in writedowns on subprime-related exposures.

The announcement on Monday by Swiss reinsurer Swiss Re that it was taking a 1.2 billion francs writedown on exposures due to the U.S. subprime mortgage crisis has put even more pressure on UBS.

Swiss Re wrote down exposures to highly risky CDOs to zero, prompting some analysts to say UBS -- which has been much less aggressive in its writedowns on exposures -- should do likewise even if it entails taking a huge charge in a single quarter.

"Swiss Re's writedown reminds people of the risk embedded in the UBS stock," said a London-based analyst with a U.S. investment bank. "This increases the pressure on UBS massively."

On Monday, Citigroup shares suffered a fresh beating after Goldman Sachs downgraded the stock to "sell" from "neutral," and said the largest U.S. bank may have to write off $15 billion over the next two quarters as mortgage losses reduce earnings.

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