UBS reports further $10 billion subprime writedowns

In its revised fourth-quarter outlook, UBS has changed its prediction for its results from profit to loss. This includes additional writedowns of $10 billion related to US subprime mortgage exposures.

The writedowns are a result of UBS revising the assumptions and inputs used to value the positions. The main instruments affected are collateralised debt obligations (CDOs) and super senior holdings.

"Conditions in the US mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities,” said Marcel Rohner, group chief executive officer of UBS. UBS said there is a possibility it could record an overall loss for the full year of 2007. Alongside this announcement, the Swiss bank’s board of directors has proposed replacing the 2007 cash dividend with a stock dividend, subject to extraordinary general meeting approval. This action would increase the bank’s Tier I capital by Sfr4.4 billion, which would otherwise be paid out to shareholders.

These announcements follow the news at the end of last month that Moody’s had downgraded UBS’s bank financial strength rating from A- to B+. The rating agency said the bank still had more subprime losses to reveal. In its third-quarter results announced in October, UBS reported $3.4 billion losses on its fixed income, rates and currencies division. The bank said this was partly due to positions in its mortgage-backed securities business.

Moody's lowers UBS rating due to subprime fears
UBS takes $3.4 billion hit