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No Joke: UBS Takes it on the Chin

Written By Brian Hicks

Posted April 1, 2008



Swiss banking giant UBS AG took another one on the chin today as the U.S. mortgage debacle continued to take big chunks off of their balance sheet.

In fact, when I first got wind of the size of their most recent write-down this morning, I thought that it was something of an April Fool’s joke gone too far.

After all, it was only about six weeks ago when the bank wrote off $18 billion in bad debt for the 4th quarter.

But it was true, here they were again six weeks later adding another $19 billion to the pile. That’s 37,000 million in two quarters if you are counting. Ouch.

From AP By Onna Coray entitled: UBS Will Write Down $19 Billion

“UBS AG’s chairman abruptly resigned Tuesday as the Swiss bank reported a first-quarter loss of $12.1 billion and said it would seek $15.1 billion in new capital.

UBS revealed more serious damage from exposure to the U.S. subprime crisis and said it expects write-downs of approximately $19 billion.

As UBS Chairman Marcel Ospel stepped down, Deutsche Bank AG, Germany’s largest bank, announced similar write-downs of about $4 billion.

It was the latest indication of how far the severe plunge in U.S. housing prices and a credit crisis triggered by rising mortgage defaults has reached.

UBS write-downs for the past nine months have reached $37.4 billion, the largest reported by any bank to date.

Ospel said he was ultimately responsible for the bank’s health as he stepped down.

“My willingness to stand for re-election for a further one-year term was based on my desire to lead UBS out of its current difficult situation,” Ospel said. “We have worked very hard and have been able to address the firm’s most pressing problems, thereby laying the foundation for the long-term success of the bank.”

The bank said its move to raise capital through a rights issue that would be fully underwritten by four leading international banks and would enable it to remain “one of the world’s strongest and best capitalized banks.”

“But Octavio Marenzi, head of financial consultancy Celent, said the UBS disclosures were ‘a clear indication that we are not out of the woods yet in terms of the credit crisis.’

“Indeed, the storm clouds are gathering ever more rapidly over the banking industry and, in particular, the U.S. banking industry, where most of UBS’s losses originated from,” Marenzi said.

He predicted the U.S. banking industry is set to see its first contraction in overall revenues in more than forty years. “This will inevitably lead to staff reductions, and we expect to see the U.S. banking industry shed about 200,000 jobs in the coming 12 to 18 months,” Marenzi said.

Earlier this year UBS posted a 12.45-billion franc loss for the fourth quarter of 2007, after writing down 15.6 billion francs tied to U.S. subprime mortgages, and said it expected another difficult year ahead.”


But as dire as that news may have seemed to the folks at UBS, their huge losses did nothing to stop the bulls today.

Instead, Wall Street began the second quarter with a big rally as investors rushed back into stocks, optimistic that the worst of the credit crisis has passed and that the economy was faring better than expected.

On the day, the Dow Jones industrials surged over 300 points.

A good sign on what was really a bad day for news.