UBS may avoid quarterly loss
Tax credits offset subprime damage
GENEVA - UBS AG may avoid a loss in the second quarter and has no plans raise capital after $2.9 billion in tax credits offset damage from the subprime crisis.
UBS, the European bank hardest hit by the subprime crisis, said yesterday its results were "at or slightly below break-even" in the quarter. Citigroup Inc. analysts estimated this week UBS would post a loss of $4.45 billion in the period on about $6.8 billion in asset write-downs.
Chief executive Marcel Rohner, who has disclosed plans to cut 5,500 jobs and shrink the investment bank, is also trying to stem defections among wealthy clients after $24.8 billion of losses. UBS said its money management division suffered client defections in the second quarter, with the withdrawals most pronounced in April.
"UBS clearly wanted to show that it didn't do that bad," said Florian Esterer, a senior portfolio manager at Swisscanto Asset Management, which oversees about $63 billion. "What worries me are the net new money outflows, which indicate a serious problem for the franchise."
UBS fell 2.6 percent, to $20 in Swiss trading, after initially climbing as much as 8.2 percent. The Bloomberg Europe Banks and Financial Services Index fell 3.1 percent. UBS is down 56 percent this year.
The Swiss bank sees no need for further capital because its Tier 1 ratio, a measure of solvency, stood at about 11.5 percent at the end of June, up from 6.9 percent on March 31. UBS raised $15.6 billion in a rights offer in the second quarter, after turning to investors for $12.7 billion earlier this year.
Goldman Sachs Group Inc. analysts estimated today that European banks may have to raise as much as $141 billion as slowing economies drive up losses on loans.
Moody's Investors Service cut its rating on UBS senior debt by one level to Aa2, citing "challenges still facing the bank's management team to return UBS to a position of stability," and expectations of weaker client fund inflows.
Banks worldwide have announced $402 billion in write-downs and credit losses related to the subprime crisis, data compiled by Bloomberg show. Markdowns at UBS amounted to more than $38 billion in the previous three quarters. UBS is scheduled to publish second-quarter results on Aug. 12.
"UBS has not been aggressive in the recent past in making their write-downs and may just be delaying the inevitable for as long as they can," Peter Thorne, an analyst at Helvea SA in London, said in a note to clients. He has am "accumulate" rating on the shares.
Chairman Peter Kurer, who replaced Marcel Ospel in April, began a review of the bank's businesses to make them better complement the wealth management unit. He will lay out the results of the review at an extraordinary shareholders meeting on Oct. 2, when four new board members will also be elected.
The US Department of Justice is probing whether UBS helped rich clients evade American taxes, and a federal judge this week authorized the Internal Revenue Service to issue a summons for client information as part of the probe. The bank has said that it's "working diligently" with both Swiss and US authorities.
Growth in assets from affluent clients at UBS, the largest manager of money for the wealthy, slowed to 8.8 percent in 2007 from 13 percent in the previous year, according to an annual survey by Scorpio Partnership released last week.
Citigroup analysts estimated an outflow of $11 billion for UBS's main wealth management unit in the second quarter, compared with an addition of $2.4 billion in the first three months of the year and a quarterly average for 2007 of $30.6 billion.
UBS brought in Jerker Johansson from Morgan Stanley in mid- March to run its investment-banking unit. Johansson in May took control of the firm's fixed-income business from Andre Esteves, who ran it for less than 10 months and left in June.
Johansson also announced plans to shut the US municipal bond business, split off proprietary trading of both stocks and debt into a separate unit within the investment bank, and hired former Morgan Stanley colleague Thomas Daula as chief risk officer for the division.
UBS is cutting about 26 percent of the headcount at its fixed-income division, and about 9 percent in investment banking and equities.
