UBS said late Tuesday that it faced a record loss of roughly $11.5 billion as write-downs tied to the U.S. mortgage market continued to exact a toll on Switzerland’s largest bank. In pre-announcing its fourth quarter earnings, UBS said it lost $12 billion on subprime-related positions, and another $2 billion in other mortgage positions. The write-down total was larger than originally advertised; the bank had originally said in mid-December that it expected to record a $10 billion charge for the fourth quarter. Earlier this month, UBS said it would pull out of fixed-income proprietary trading in the U.S. as it looks to restructure ABS operations. The additional $2 billion in write-downs outside of subprime mortgages was a major source of concern for the financial markets, according to coverage by Bloomberg:

“The damage is enormous,” said Dominique Biedermann, director of Ethos Foundation in Geneva that holds UBS shares worth about 80 million francs and has called for an independent audit of the bank’s controls. “It wipes out profit and shows that an inquiry is needed to make sure it doesn’t happen again, and eventually whose responsibility this is.” … “Value declines have extended beyond just subprime-related exposures, to new areas, for which we do not yet have disclosure on exposure size,” Jeremy Sigee, an analyst at Citigroup, said in a note to clients. “The recently bolstered capital base remains vulnerable to further erosion.”

UBS was not a large player in terms of mortgage securitization, so these losses end up being particularly troubling; and they certainly don’t bode well for investment banks’ earnings going forward.

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