Geoff Cutmore - Morning Thoughts

UBS: If the Worst is Over, Where's the Visibility?

Geoff Cutmore

When Warren Buffet treated his 31,000 plus audience to his annual Berkshire Hathaway gathering in Nebraska recently he was asked about the banks. When would he be happy to buy back into U.S. investment banks?

And did he think that valuations are now attractive? Buffett responded that he would be happier to own the Korean stock market than add U.S. investment banks to his portfolio. After today’s news from UBS he might have considered adding the Swiss financial to his caution list.

UBS' announcement may take us closer to the end of the writedowns, but the outlook is clear as mud! OK, they claim they don't need to raise further capital at this stage and the writedowns were in line with expectations, but it's hard to find any more good news.

And 5,500 jobs are to go, many in the investment banking unit, but there was no comment on the demands of activist shareholder Olivant to force the bank to shed this unit.

The bank is selling down its subprime mortgage exposure for $15 billion, but that is a significant haircut from the nominal $20 billion value.

And, critically for investors who believe the bank's core wealth management operations set the bank apart from its rivals, global asset management saw capital outflows, and wealth management delivered lower-than-expected inflows.

Chief Executive Marcel Rohner declined to give any guidance on results and merely repeated the mantra that the market conditions remain difficult.

Ahead of these results, UBS shares had climbed about 15 percent, outperforming the broader European banking sector by some margin. Cutting costs may reduce future losses, but the management team still needs to show where the future earnings momentum is going to come from.

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