UBS AG reported its first quarterly loss in five years after hefty writedowns on subprime-related investments, but said it expects to turn in a group profit in the last quarter.
The Swiss bank, which took charges of 4.2 billion Swiss francs ($3.6 billion) on subprime-related losses in fixed income in the third quarter, said on Tuesday its investment bank was unlikely to break even in the final quarter.
Banks worldwide have taken charges totaling more than $20 billion on holdings in mortgage-backed securities which have been hit by a meltdown in U.S. subprime mortgages -- loans extended to borrowers with patchy credit histories.
UBS repeated warnings of further writedowns, but Chief Executive Officer Marcel Rohner declined to give any detailed forecasts. The range of possible outcomes is widening, he said on Tuesday.
While we are still disappointed with the result, we have a very strong set of numbers in particular in asset-gathering and the commission-based businesses, Rohner told journalists on a conference call.
UBS's Chief Financial Officer Marco Suter later told Reuters in an interview that any writedowns UBS may have to make on subprime-related exposures in the fourth quarter were highly unlikely to be on the same scale as in the third quarter.
...nothing is inconceivable, but I think it is highly unlikely, Suter said when asked if fourth quarter writedowns could be as big as in the previous three months.
Analysts are bracing for more writedowns in the final quarter. At the moment it looks like further writedowns are probable, said Andreas Venditti, an analyst at ZKB in Zurich.
HIGHER LOSS THAN EXPECTED
It was UBS's first significant loss in a three-month period since 1998, when the economic crisis in Russia hit results.
UBS made a 726 million franc pretax loss in the third quarter, after a 2.199 billion francs net profit a year ago.
The third-quarter net loss was 830 million francs, higher than a Reuters poll of 14 analysts giving an average forecast of a 668 million franc loss.
Our third quarter result was unquestionably disappointing. However, we have introduced a number of measures to improve performance, Rohner said in a statement. We are also taking steps to strengthen our market risk management.
Rohner told analysts on a conference call that the bank's fixed-income business was now profitable except in the area of residential mortgage-backed securities.
Shares in UBS were 1.3 percent lower at 0946 GMT at 61.35 francs, having touched 60.95 francs earlier.
Presentation slides showed that UBS's exposure to residential mortgage-backed securities had fallen since the start of October to $16.8 billion from $19.0 billion while retained collateralized debt obligation (CDO) exposures fell to $1.8 billion from $4.0 billion.
The bank also disclosed it was holding highly illiquid super senior debt of $20.2 billion on October30.
The fourth quarter had started profitably for all businesses, including the investment bank, he said.
However the FICC (fixed income, currencies and commodities) business remains exposed to further deterioration in the US housing and mortgage markets, a UBS statement said.
Ratings downgrades by credit ratings agencies for mortgage-related securities could trigger more writedowns on the bank's securities portfolio, it said.
The first quarter will depend on where we end with the U.S. housing market, Rohner said in the conference call.
Net new money in wealth management was 40.2 billion francs in the third quarter, up from 26.8 billion francs in the third quarter of 2006. Net new money inflows were 35.2 billion francs in the second quarter of 2007.
UBS made a second-quarter net profit of 5.62 billion francs, including a windfall from the sale of a minority stake in Swiss private bank Julius Baer
UBS on Monday confirmed guidance issued at the start of October that it faced a third-quarter pretax loss of 600 million to 800 million francs, but also warned investors it may have to make further writedowns on its fixed-income portfolio.