Q4 loss of Sfr8.1 billion for UBS

Swiss banking giant UBS reported a fourth quarter net loss of Sfr8.1 billion ($7 billion), bringing its full-year net losses to Sfr19.7 billion. The bank also revealed $16.4 billion of illiquid credit assets had been transferred to the Swiss National Bank's Stabfund since its conception last year.

UBS's investment bank operations proved the principal source of poor performance, recording a pre-tax loss of Sfr7.5 billion in Q4, compared with a pre-tax loss of Sfr2.75 billion the previous quarter. The losses were mainly attributed to poor trading and sales, and the bank's exposure to monoline insurers in the fixed income, currency and commodities (FICC) business.

Notional exposure to monolines totalled $21.5 billion, with the fair-value of underlying collateralised debt obligations amounting to $9.2 billion, and fair-value of credit default swaps after credit valuation coming to $5.3 billion.

Total losses in FICC amounted to Sfr3.1 billion. Net revenues fell to Sfr231 million from Sfr1.2 billion in Q3, principally as a result of negative revenues from derivatives activities.

Global wealth banking and business banking saw pre-tax profits decline 36% to Sfr1.1 billion. Net profits in its Wealth Management International and Switzerland business decreased to Sfr712 million from Sfr1.1 billion due to credit losses on lombard loans. The Wealth Management US business recorded a pre-tax loss of Sfr341 million, down from a pre-tax profit of Sfr203 million in Q3 due to a hit on auction rate securities (ARS). UBS's exposure to ARS totalled $12.9 billion, up from $8.5 billion in Q3.

Pre-tax profit in its global asset management business declined 43% to Sfr236 million from Sfr415 million in Q3. A decline in management fees and higher operational losses contributed to the decrease.

With regard to off-balance-sheet derivatives instruments, UBS reduced its notional positions from Sfr53,618 billion in Q3 to Sfr47,123 billion in the final quarter.

The Corporate Center recorded losses of Sfr3.6 billion, substantially more than the Sfr7 million lost the previous quarter. Sfr3.5 billion of the losses were attributed to the transaction between UBS and the SNB, as well as placing mandatory convertible notes with the Swiss Confederation.

The SNB Stabfund - a Switzerland-domiciled special purpose vehicle - was established last October to absorb up to $60 billion of UBS's troubled assets, mainly related to US subprime mortgages. On December 16, 2008, the Stabfund acquired a first tranche of 2,042 securities for $16.4 billion (the securities would be purchased at their value as of September 30, 2008). With the SNB and UBS agreeing student loan ARS would not be bought up by the fund, the total amount of positions expected to be transferred to the fund will be reduced to $39.1 billion.

Despite the losses, the bank's tier-one capital rose to 11.5% from 11% the previous quarter, while risk-weighted assets dropped from Sfr332 billion to Sfr302 billion. Meanwhile, compensation payments across the company fell by 85% year-on-year and the workforce was reduced by 1,782 over the quarter.

As part of its ongoing restructuring, UBS will divide its Global Wealth Management in two: Wealth Management International and Switzerland and Wealth Management US.

In a letter to investors, chairman Peter Kurer and chief executive Marcel Rohner affirmed the investment bank will remain a core business. "Financial market conditions remain fragile," they said. "Our near-term outlook therefore remains cautious, and UBS will continue its programme to strengthen its financial position through reductions in risk positions."

As of 11.10 GMT, shares in UBS on the Swiss Stock Exchange were trading at its opening price of Sfr13.10, having risen to a high Sfr13.82 and fallen to a low of Sfr12.55.

See also: SNB issues US dollar debt to fund UBS's bad bank;
UBS exits exotic structured products business in FICC