UBS AGwarned it may face more writedowns on its fixed income portfolio but said, just a day before reporting results, that its third-quarter pretax loss would be no worse than already predicted.
The bank on Monday stood by its statement of Oct. 1 that it would make a third-quarter loss of 600 million to 800 million Swiss francs ($515.9 million to $687.9 million) after a 4 billion-franc writedown of losses on fixed income investments related to sub-prime loans.
Banks around the world have taken big writedowns on exposures to investments linked to risky U.S. sub-prime mortgages - loans often made to people with patchy credit histories.
The UBS statement was highly unusual, coming only one day before the formal announcement of its third-quarter results.
Reacting to a weekend newspaper report saying more hefty writedowns could lead to a much bigger-than-expected quarterly loss, UBS also said it had begun the fourth quarter well in all business areas, including its investment bank.
But the bank said it was not assuming the fourth quarter would continue as well as it had begun and warned it could face more writedowns on its fixed income portfolio.
Investors and analysts have been bracing for more bad news from UBS and other banks after U.S. investment bank Merrill Lynch last week announced $8.4 billion in writedowns, reflecting a severe worsening in the market for Collateralised Debt Obligations (CDOs).
Japan's largest bank, Mitsubish UFJ Financial Group, also sprang a surprise on Monday, saying it would have to write down the value of its sub-prime related investments by as much as 30 billion yen ($262.5 million) - six times more than previously announced.
Some analysts said they were inclined to interpret Monday's statement as a clear warning of more bad news to come.
They have not squashed it (the rumours of more writedowns), they have confirmed it, said one London-based analyst, who asked not to be identified.
The bank's shares were 0.9 percent higher on Monday following the guidance.
UBS, the world's largest wealth manager, is due to report third-quarter results at 0600 GMT on Tuesday, Oct. 30.
MARKETS BRACED FOR WRITEDOWNS
Other analysts said investors were already well aware that UBS, like other investment banks with exposure to mortgage-backed securities, faces more writedowns if market conditions worsen.
We know the positions are there and if there is going to be further deterioration it will cause more writedowns, said Andreas Venditti, an analyst at ZKB in Zurich. If on December 31, this market looks worse than on September 30, there will be more writedowns. That is logical, it's not really new.
UBS was likely to soften the blow, in the event of further writedowns, by actively managing its fixed income portfolio and hedging its positions, said Venditti.
The UBS statement referred to a media report over the weekend that suggested that it may face additional writedowns in trading positions related to the U.S. sub-prime residential mortgage-backed securities market.
UBS said the fixed income business remains exposed to further deterioration in the U.S. housing and mortgage markets as well as ratings downgrades for mortgage-related securities.
UBS has had a turbulent year, announcing the closure in May of a hedge fund venture, Dillon Read Capital Management, after it ran up big losses linked to the deterioration in the U.S. sub-prime mortgage market.
The Swiss bank's CEO, Peter Wuffli, resigned abruptly in July and was replaced by Marcel Rohner, who now faces the task of repairing UBS's tarnished reputation.
It would be naive to believe that the story is already over. But this is a sectoral problem and not only one for UBS, said a Zurich-based analyst, who asked not to be named.
(Additional reporting by Ruppert Pretterklieber)