First quarterly loss in 5 years, investment bank unlikely to break even in Q4.

(ZURICH) UBS AG reported a higher-than-expected third-quarter loss after hefty writedowns on sub-prime-related investments, but said it expects to turn in a group profit in the last quarter.

Mr Rohner: ‘We are taking steps to strengthen our market risk management.’

The Swiss bank, which took charges of 4.2 billion Swiss francs (S$5.22 billion) on sub-prime-related losses in fixed income in the third quarter, said yesterday its investment bank was unlikely to break even in the final quarter.

‘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,’ chief executive officer Marcel Rohner told journalists on a conference call.

It was UBS’s first quarterly loss in five years and the first significant loss in a three-month period since 1998, when the bank was hit by the economic crisis in Russia.

UBS repeated warnings of further write-downs, but Mr Rohner declined to give any detailed forecasts. ‘The range of possible outcomes is widening,’ he said.

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.

Analysts said they were now bracing for more writedowns in the final quarter of the year. ‘At the moment it looks like further writedowns are probable,’ said Andreas Venditti, an analyst at ZKB here.

Banks worldwide have taken charges totalling more than US$20 billion on holdings in mortgage-backed securities which have been hit by a meltdown in US sub-prime mortgages - loans extended to borrowers with patchy credit histories.

‘The first quarter will depend on where we end with the US housing market,’ Mr Rohner said in a conference call.

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.

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.

‘Our third quarter result was unquestionably disappointing. However, we have introduced a number of measures to improve performance,’ Mr Rohner said in a statement. ‘We are also taking steps to strengthen our market risk management.’

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. — Reuters

Source: Business Times