The Wall Street Journal-20080215-UBS Picture Spells More Woe for Banks- Swiss Titan Posts Loss- Confirms Write-Downs Exceeding --36-18 Billion

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UBS Picture Spells More Woe for Banks; Swiss Titan Posts Loss, Confirms Write-Downs Exceeding $18 Billion

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Swiss banking giant UBS AG, Europe's worst-hit by the U.S. subprime- mortgage crisis, offered a bleak outlook for this year as it confirmed more than $18 billion in write-downs.

Though UBS warned of the losses last month, the downbeat report -- internally deemed the "St. Valentine's Day massacre" -- foreshadowed more trouble for banks as the global financial crisis broadens beyond risky subprime-mortgage investments.

"The environment currently is very challenging," said Chief Executive Marcel Rohner.

UBS reported a fourth-quarter net loss of 12.45 billion Swiss francs ($11.23 billion), including a $13.7 billion write-down on investments tied to U.S. mortgage investments. The bank posted its first full-year net loss -- 4.4 billion francs -- in the 10 years since it emerged from a megamerger between Swiss Bank Corp. and Union Bank of Switzerland in 1997. Write-downs for 2007 were $18.4 billion.

For the first time, UBS provided details of nearly $70 billion in holdings of subprime-mortgage and other problematic securities -- an exposure that led analysts to predict more trouble.

"We still think further write-downs are likely in at least the first quarter, further impairing confidence," Deutsche Bank analyst Matt Spick said. He downgraded UBS to "hold" from "buy" as a result. Shares in UBS fell 8.3% Thursday to 37.46 francs.

The bank said that as of the end of last year, it held $27.6 billion in securities linked to subprime mortgages; $26.6 billion in securities tied to Alt-A mortgages, which rank just above subprime in terms of risk; $7.7 billion in commercial-real-estate assets; $3.8 billion as part of a so-called reference-linked note program, which the bank uses to partially insure a portfolio of securities; and $2.9 billion in mortgage securities backed by troubled bond-insurance companies.

Mr. Rohner said the bank is ring-fencing the troubled securities, which he called a "workout portfolio," from the rest of the bank's operations. He declined to comment on whether more write-downs would be needed.

UBS's persistent problems could further weaken its chairman, Marcel Ospel, at a time when the bank is seeking shareholder approval for a 13-billion-franc capital injection from the Government of Singapore Investment Corp. and an unidentified Middle Eastern investor. UBS said the two investors remain committed to the plan, despite a dramatic worsening in UBS's prospects since the fresh capital was granted in December. Shareholders will meet Feb. 27 to vote on the plan.

One Swiss activist shareholder, Ethos, has publicly called for UBS to put forth candidates to succeed Mr. Ospel, who has unusually far- reaching operational influence compared with his peers at other banks. One of the most frequently mentioned candidates is Philipp Hildebrand, one of three governors of the Swiss central bank. Mr. Hildebrand said yesterday he remains "firmly committed" to his role at the central bank.

Mr. Ospel is one of the few UBS chiefs left standing. Numerous executives were dismissed, including Chief Executive Peter Wuffli, investment-banking head Huw Jenkins and financial chief Clive Standish.

In an effort to rebuild its ranks, UBS this week said it will appoint Morgan Stanley veteran Jerker Johansson to head its investment-banking division. Mr. Rohner has been running the investment bank since Mr. Jenkins's departure last year.