UBS AG receives a negative report card

By Aaron Kirchfeld  |   2008-6-20  |     NEWSPAPER EDITION

UBS AG, the European bank with the biggest losses from the United States subprime collapse, may book more writedowns in the second quarter than rivals Credit Suisse Group and Deutsche Bank AG.

This is the call by analysts at Goldman Sachs Group Inc, Bloomberg News reported.

Earnings at Zurich-based UBS may be lowered by 4 billion Swiss francs (US$3.8 billion), London-based analysts, including Chris Turner and Christoffer Malmer, said in a note to investors.

Credit Suisse may write down 1.15 billion francs and Frankfurt-based Deutsche Bank 480 million euros (US$743 million).

"Based on the movements of credit-market indicators since the end of March, we believe that European banks could continue to face negative value adjustments," the analysts wrote.

Goldman also reduced forecasts for earnings per share for the three banks because of the "challenging environment in capital markets."

Banks and securities firms worldwide are grappling with US$397 billion in losses and writedowns amid a seizure in the credit markets. Lenders have shed 83,000 jobs globally since the crisis began and are offering fewer loans and have raised US$303 billion in new capital to shore up balance sheets.

UBS shares yesterday fell 1.8 percent to 24.34 francs and Credit Suisse declined 1.1 percent to 49 francs at 11:46am in Swiss trading. Deutsche Bank, Germany's biggest bank, lost 1.1 percent to 60.86 euros in Frankfurt.

Morgan Stanley, the second-largest US securities firm after Goldman, reported a 57-percent drop in second-quarter earnings on Wednesday as revenue from asset management and investment banking declined while equities and fixed-income traders generated less profit.

UBS has raised about US$29 billion to shore up capital after more than US$38 billion in writedowns on subprime-infected assets. The Swiss bank said last month it may face further markdowns.

Goldman forecast UBS's second-quarter losses will mainly come from the declining value of subprime-related collateralized debt obligations and securities backed by bond insurers.

The bank may book a 1-billion-euro loss on its own debt. Credit Suisse will mark down the value of CDOs, which repackage bonds into new securities with varying risks, as well as 546 million francs on its own debt, Goldman said. Deutsche Bank will face "relatively modest" writedowns, mostly related to bond insurers, the analysts said.

The German bank may need to raise 3 billion euros in new capital to satisfy the regulators' desire for capital strength "in a post-crisis world," said David Williams, a London-based analyst at Fox-Pitt Kelton.

Deutsche Bank's core equity tier-1 ratio of 9.2 percent, though "robust" compared with European peers, fares "less well" against US investment banks, he said.

The bank would likely prefer to get a new long-term investor on board, such as a sovereign wealth fund, than sell new shares, Williams said.