UBS Shares Fall as More Writedowns, Job Cuts Seen

Shares in UBS fell sharply again on Monday as speculation grew the Swiss bank is poised to announce further job cuts and hefty writedowns, including on asset categories that have so far avoided the spotlight.

Swiss newspaper Sonntag said on Sunday that UBS, the world's largest wealth manager in terms of assets, would cut a further 8,000 jobs and write down at least another $2 billion on illiquid assets.

Analysts say UBS may make further writedowns on about $5 billion of assets wrapped by monoline insurers that the Swiss bank decided in February not to transfer to a special fund set up by the Swiss National Bank to absorb its toxic assets.

Part of the writedowns would also be on collateralized loan obligations (CLOs), structured credit vehicles that invest in leveraged loans and whose valuations decline as levels of default on corporate debt rise, Sonntag said.

Sonntag, which cited people familiar with the issue, said the fresh writedown could be announced as soon as Wednesday.

UBS declined to comment on the report on Monday.

UBS shares were down 9.7 percent at 10.14 Swiss francs, underperforming a DJ Stoxx European banking sector index that was down 8.6 percent and adding to falls of 7 percent on Friday as traders said rumors swirled of a profit warning and more writedowns in the first quarter.

UBS, one of the hardest-hit in Europe by fallout from the sub-prime crisis, has already made writedowns of more than $49 billion since mid-2007 and cut over 7,000 jobs, mostly in investment banking.

The tarnished Swiss banking icon is struggling to rebuild its once powerful brand after massive investments in risky U.S. assets forced it to accept government backing to survive.

Illiquid Assets

A writedown on CLOs — which loan traders have tipped as the next ailing asset class to buffet the financial services industry — would usher in a new phase in UBS's ongoing battle to purge its balance sheet.

It would also chime in with analysts' expectations that new Chief Executive Oswald Gruebel, brought in in February after previously turning around Credit Suisse, will choose to get all the bad news out of the way at once in a move termed 'kitchen-sinking'.

Saul Haydon-Rowe, partner at London-based structured finance analysts Devon Partners, estimated that, across the industry, between 30 and 50 percent of CLOs would need to have their valuations written down.

"We've had a lot of enquiries on CLO values recently. The big issue is that they are even more opaque than CDOs (collateralized debt obligations), which lay at the root of the sub-prime crisis," Haydon-Rowe said. "A lot of these products don't have the documents of the underlying loans, many are private loans, and in many cases the staff who originally structured the CLOs - and so can understand them - have moved on."

UBS widened its 2008 net loss to 20.9 billion Swiss francs in a March 11 revision and said its near-term outlook was extremely cautious, warning that its balance sheet remained exposed to illiquid and volatile markets.

Fresh writedowns might cover UBS' exposure to credit guarantees, or wraps, from U.S. monoline insurers, valued on the bank's balance sheet at $5.3 billion at the end of 2008, Bank Sarasin analyst Rainer Skierka said in a research note.

In a telephone conversation, Skierka told Reuters those assets had already been marked down from more than $12 billion, and that UBS had been more aggressive in its markedowns than many other banks.

"The problem is it is not clear if banks have written down the monoline wraps they bought to the right level," said Haydon-Rowe.

Monoline wraps are used to guarantee against the default of certain types of collateralized debt.

"The monolines have been looking to buy back these wraps, but offering a fraction of the original price."

If the banks don't accept this offer, they may end up with nothing if the monolines default, he said.

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