UBS writes down another $5 billion

UBS reported a loss of 358 million Swiss Francs ($332 million) after writing down a further $5.1 billion in debt.

In my post yesterday, I said the market expected as much. But, more importantly UBS has confirmed plans also mentioned in yesterday’s post of splitting the bank up into three autonomous units – effectively ending the universal banking model. Citigroup, another big loser in this credit crunch will be under increasing pressure to follow suit, as Sandy Weill’s ‘financial supermarket’ concept has performed abysmally.

The Financial Times also notes that UBS is quite downbeat about turnaround prospects for the second half of 2008. If one takes this to mean that the same environment which caused these writedowns is likely to hold, I believe it means we should see significant writedowns in Q3 and Q4 earnings cycles — and not only from UBS.

However, investors have developed a severe case of heartburn when it comes to financial services share offerings. Share sales at this point in the year will likely be met with little investor appetite and risk failing. If writedowns continue unabated into the third and fourth quarter as UBS management has suggested, a weaker global player will likely go to the wall because of limited capital raising opportunities.

These are very nervous times.

UBS shakes up board amid further losses – FT
UBS to Separate Businesses After Second-Quarter Loss – Reuters/NY Times
UBS to reorganise in three units – BBC News

Bloomberg: $500 billion in writedowns by firm
Credit Unions in trouble


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.