UBS warned today that it expects to take a stunning write-down of approximately $3.4 billion (4 billion Swiss francs) on subprime RMBS-related losses, driving a third quarter loss of $515 million to $690 million (600 to 800 million Swiss francs). The admission comes as US-based Citigroup also warned of billions of dollars worth of write-downs associated with a slumping mortgage and consumer credit market. The losses will drive 1,500 job losses in the investment banking operations of the world's largest wealth manager, as well as a shake-up of executive management. From the press statement, CEO Marcel Rohner made it clear that heads will roll:
"On August 14, I said that if turbulent conditions prevail throughout the quarter, we will probably see a very weak trading result in the Investment Bank, offset by predictable earnings from wealth and asset management. In fact, conditions remained turbulent, so we will make an overall pre-tax loss at Group level for the quarter. Our first quarterly loss in nine years is an unsatisfactory result, especially after such a strong first half. I have therefore taken decisive action to be as transparent as possible. I have also made appropriate senior management changes, and will accelerate already-planned changes to the firm."
Among the executive changes: Rohner will assume chairman and CEO duties from current investment bank chief Huw Jenkins, who will step down and become and adviser; CFO Clive Standish will retire, with executive vice chairman Marco Suter assuming financial duties. From Reuters, Credit Suisse is also taking a hit -- but one that would allow it to remain profitable:
"It's probably safe to say, UBS won't be the last bank to announce something like this in the months ahead, but it begs the question as to how long this turmoil will continue," said Eamonn Hughes of Goodbody Stockbrokers ... In a separate announcement, rival bank Credit Suisse said it was also hit by the credit crunch but that it would remain profitable in the third quarter with income from continuing operations after tax of around 1.3 billion francs. The bank declined to provide further detail.
The UBS bombshell surprised some analysts, at least according to press coverage I've seen, but it clearly hasn't fazed investors -- the stock is up nearly 4 percent in early trading this morning. I think many see this as necessary purging, particularly given the magnitude of losses involved; and I think the market has already priced in the fact that there aren't likely to be many bright spots from financial institutions this quarter. At the risk of sounding overly bearish here, however, my concern is that these write-downs are reactionary and not necessarily forward-looking; regular HW readers know well my prediliction to look to the underlying assets whenever we're talking about derivative securities. With that in mind, I'm concerned that further poor performance in housing -- something I see as a foregone conclusion at this point -- could drive losses beyond the write-downs now being put on the books.