Worries mounted in the market that UBS would unveil more losses this week after the Swiss bank said at the weekend it had begun lowering the value of some structured securities held by clients.
UBS shares were down 0.4 percent on Monday on concerns about its $5.9 billion exposure to Auction Rate Securities (ARS), a class of structured investments that has suffered liquidity problems in the global financial crisis.
Analysts at Merrill Lynch say they expect UBS to have to write down up to 5 percent of its exposure to ARS -- or around $295 million. UBS told its clients on Friday that it would mark down the value of their ARS holdings.
"Unknown unknowns from credit markets can still spring negative surprises for the banking sector," Merrill Lynch said.
UBS shareholders are on tenterhooks amid expectations the bank, Europe's hardest hit by the financial crisis, may unveil fresh subprime losses and seek a new capital hike this week, ahead of an annual general meeting on April 23.
Analysts expect UBS to write down between 10 billion Swiss francs ($10.03 billion) and 20 billion Swiss francs in ailing assets this year, in addition to $18 billion in 2007.
Shareholders have already approved 19 billion francs in capital-raising measures.
The bank needs a sound capital base to underpin its wealth management business for rich clients, who have less tolerance to losing money than institutional investors and are easily irked by negative headlines.
ARS writedowns illustrate how even safe assets have suffered from a lack of liquidity since the outset of the financial crisis in August.
"UBS's announcement on Friday that it would be marking down its private clients' holdings of Auction Rate Securities (ARS) shows new product concerns can emerge, even after nine months of turbulence in financial markets," Merrill said.
Any more serious losses could send UBS back to shareholders with cap in hand or force a shake-up in the group structure.
What was unthinkable one year ago -- that UBS could be taken over -- is now daily speculation, with many experts saying the investment banking woes have left its valuable wealth management franchise, the world's largest, undamaged.
Also on Monday, U.S. brokerage Bernstein predicted UBS would post a loss of 0.97 Swiss francs per share for 2008, against its prior profit share view of 0.25 francs. It expects writedowns of $9.8 billion.
UBS shares have lost 45 percent this year on concerns it would need to raise capital again.