10/30/07

Always a relevant and ever-important topic to our economics class, an article within today's Guardian stated that the crisis has struck again. UBS, Europe's largest bank, announced a third-quarter pre-tax loss of £300m and issued a warning to investors that it could face further write-downs of assets due to the subprime mortgage crisis.

Title of Article: UBS posts £300m loss
Source: The Guardian
Date: 10/30/07

Higher than the market expected, the £300m loss comes as UBS's first blow in five years. Although the bank expected to end with profitability in the fourth quarter of this turbulent year, they are now expecting to suffer further losses in the final quarter. The banking sector of UBS, already shocked by Merrill Lynch's £4.35bn write down report and the departure of its chief executive Stan O'Neal, received further shock when news of the loss and further write downs hit. Fears that future returns would be significantly less than the recent past has caused UBS shares to fall by more than 1%.

Marcel Rohner, UBS's new CEO, said that the range of possible outcomes as a result of the write-downs was widening. Marco Suter, successor to Clive Standish, group chief financial officer (who was fired by Rohner in the wake of the crisis), said that it was "highly unlikely" that the scale of the write-downs in the fourth quarter would be as high as in the third quarter when the sub-prime crisis fully erupted. This would in turn force US and European central banks to pour billions into the financial markets.

UBS, which ended with profit in the corresponding quarter of 2006, said that it had reduced its exposure on residential mortgage-backed securities as well as collateral debt obligations in attempts to ameliorate their standings and decrease the potential for further losses in the fourth quarter. Rohner said that while their results for the third quarter were disappointing, he insisted that the bank was dealing with their weaknesses by making changes such as the ones listed above and are also making management changes and developing sharper risk assessments. Other banks such as Deutsche Bank and Credit Suisse are due to report their third quarter results on Wednesday but are promising investors that their exposure to the crisis is relatively under control and assurred them to not expect any results such as those endured by UBS.

When will it ever end?!? Day after day we receive more bad news as a result of the subprime crisis; who will it not effect? Already it's tarnished the image and ruined the standings of many major economic cooperations, and now it has hit Europe's largest bank. £300 million is not a light burden to carry; I wonder how UBS is going to get back out on top after this. The potential to deal the continent's largest bank its first loss in five years obvioulsy displays the power and seriousness this crisis contains. Some officials expect further losses in the fourth quarter while others claim that the write downs will not be as high as they were in the third quarter: only time will tell who is right. As for now, all we can do is hope that this awful crisis will just go away already and pray that UBS along with the other affected companies will regain their strength and prosperity.