It’s become a somewhat predictable pattern as the mortgage crisis has rolled onward: company takes huge losses, investors hope for the best, company executives mask the same hope as fact, only to post more losses in the next earnings period, leading investors to (again) hope for the best. And thus the cycle has tended to repeat for the past three quarters or so. Nowhere has this trend been more true than at European banking giant UBS AG (UBS), which has been battered by its exposure to U.S. mortgages in recent months. The company absorbed $19.5 billion in write-downs during the most recent first quarter — enough to put lesser financial institutions out of business — and sold off a chunk of its subprime mortgage book to BlackRock Inc. (BLK) in an effort to limit its future exposure to bad mortgages. Problem is, troubled mortgages keep appearing elsewhere. The latest example lies within the company’s 925-page investor prospectus for an upcoming 16-billion euro rights offer, which warned that losses on mortgages outside the U.S. might be the next chip to fall. Via Bloomberg News, which combed the prospectus:

UBS, in the prospectus for its 16 billion-franc rights offer, said the bank’s losses on non-U.S. residential and commercial real-estate securities “could increase in the future.” UBS is also evaluating whether to limit or discontinue one or more U.S. reference-linked note programs, which “could result in a charge to income,” the bank said in the document, released after markets closed on May 23. “UBS will have to fight against negative news flow for at least several more quarters,” said Rolf Biland, who helps manage about $3.1 billion, including UBS shares, as chief investment officer at VZ Vermoegenszentrum in Zurich. “The U.K. housing market is almost as overheated as in the U.S., and could lead to losses for banks.”

We don’t focus heavily (yet) on the international mortgage market here at HW, but what we have seen in the press thus far rings a familar tone to what we’ve seen transpire within the United States. And that certainly bears some watching going forward; UBS, however, hasn’t disclosed how much it holds in RMBS and related securities outside of the U.S. market — certainly curious to HW’s reporters, given that the rights issue is limited to investors outside of the United States. Not that UBS’ exposure to mortgages state-side is nil: in its prospectus, the financial giant pegged its net exposure to U.S. subprime mortgages at $27.6 billion, net of hedges. Alt-A mortgage exposure stood at a similar $26.6 billion, as well. And with hedges proving less effective at a somewhat alarming rate for more than a few financial institutions, HW’s sources have suggested that UBS’ exposure could quickly increase beyond what has been disclosed thus far. Disclosure: The author held no positions in UBS or BLK when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.