Switzerland's banking watchdog warned that the country's two largest banks UBS and Credit Suisse could face write-downs in assets beyond subprime, sending their shares spiraling lower.
The two banks could face write-downs in "hotspots" such as credit cards and commercial and retail loans, the head of the Swiss banking watchdog (EBK) told a newspaper.
"Risks today are no longer limited to subprime mortgages. They are now spilling over into credit cards, retail and commercial loans," Daniel Zuberbuehler, director of the Swiss
Federal Banking Commission told Blick newspaper.
UBS shares closed 3.8 percent lower, while Credit Suisse fell 0.9 percent.
"People here are talking about the next hotspots, meaning areas that will come under pressure next ... It cannot be ruled out that there could be more to come," Zuberbuehler said.
He also said UBS -- which has written down $18.4 billion in bad debt mostly linked to U.S. subprime mortgages – faced further write-downs as the credit crisis continued.
"As long as the crisis continues, there can be further write-downs," he said, referring to UBS.
UBS, the European bank hit hardest by the credit crisis, on Wednesday shocked markets with a further $4 billion subprime write-down, saying it would post a 4.4 billion Swiss franc ($4.07 billion) net loss in 2007.
Traders quoted Zuberbuehler's interview as one of the reasons why UBS shares were suffering most among Europe's banks.
"People are afraid there will be further write-downs. UBS is most exposed after the bad news from a day ago," a trader said, requesting anonymity.
"And now EBK head Zuberbuehler is making things worse in his interview," the trader said.
The broader banking sector was also hurt by Standard & Poor's saying it might cut the ratings of hundreds of billions of dollars of U.S. mortgage-backed securities.