UBS startles market with $14 billion writedown

UBS revealed this morning that it had taken even more damage from the US subprime debacle than it expected, with writedowns totalling $14 billion.

The Swiss bank will report $12 billion in fourth-quarter writedowns on its portfolio of assets linked to US subprime mortgages, and another $2 billion on assets linked to other US residential mortgages. It warned in December that it faced $10 billion in writedowns on its subprime mortgage holdings alone. This follows $4.4 billion in writedowns in the third quarter, and means the bank's subprime portfolio is now almost worthless - in its third-quarter results, the total residential mortgage-backed security portfolio was valued at $19 billion.

UBS will report its results in full on February 14, but said it would see a net loss of SFr12.5 billion for the quarter and SFr4.4 billion for the full year. In December, the bank warned it could see a loss for the full year.

The reasons for the writedown are still unclear, but rating agency Moody's criticised the bank's collateralised debt obligation (CDO) valuation methods in November. "Given the ongoing deterioration in the performance of the subprime collateral backing the CDOs, we expect the bank will likely need to take further meaningful writedowns on this portfolio. We have noted UBS is marking its super-senior CDOs to model, and this can currently lead to a lower level of markdowns than at banks that are referencing similar securities to the relevant ABX indexes," it wrote.

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