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UBS takes fresh $10B subprime hit

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Written on 6:04 AM by yahoo

(CNN) -- Struggling UBS admitted Monday it would write down a further $10 billion in U.S. subprime losses and said it could record losses for the entire financial year.

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UBS's third quarter operating loss was its first in nine years.

The Swiss banking giant also said it would borrow 13 billion Swiss francs ($11.51 billion) to strengthen its capital base, including 11 billion Swiss francs from Singapore's state-owned investment company, GIC, making it UBS's largest single investor with a nine percent stake.

Another 2 billion Swiss francs came from an undisclosed Middle Eastern investor.

UBS's board has also approved the replacement of a 2007 cash dividend with a stock dividend and the re-sale of 36.4 million treasury shares, raising a further 4.4 billion Swiss francs, according to a statement.

Chief Executive Marcel Rohner said the company had updated its loss assumptions in response to deteriorating conditions in the U.S. mortgage and housing markets which had made the value of UBS's subprime holdings "unknowable."

"In our judgement these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation," said Rohner.

"Losses in sub-prime are very disappointing but come at a time when most of our businesses are generating close to record levels of profit. I am confident that, after these writedowns and with a strong balance sheet, we are well positioned for growth and profitability."

UBS's latest problems come after the bank reported third-quarter net losses of Swiss francs 830 million for the period to September 30, the first time in nine years it had recorded an operating loss. In the statement Monday, UBS admitted it could now face further losses.

"UBS revises its outlook for its fourth quarter 2007 from an overall Group profit, as anticipated in its announcement of 30 October 2007, to a loss," the statement said.

"It is now possible that UBS will record a net loss attributable to shareholders for the full year 2007."

Tony Tan, deputy chairman of GIC, denied its investment in UBS meant it was seeking control of the banking group.

"GIC is now the single largest investor in UBS and this is the largest investment GIC has made in any company," Tan told a news conference, The Associated Press reported.

"We did not make it a condition that our investment should have a representation (on UBS's board.) We have no desire to control the business of the bank."

Previously, Merrill Lynch and Citigroup had been the biggest casualties of the subprime crisis with Merrill losing more than $8 billion on mortgage securities in the last quarter, prompting the resignation of chief executive Stan O'Neal. Further losses are expected when it reports again in January.

At Citigroup, chief executive Chuck Prince was also toppled after he had to admit the company could take a writedown of $8-11 billion in the fourth quarter.

Meanwhile, Morgan Stanley is expecting to lose $3.7 billion in the fourth quarter when it reports this month and Bear Stearns expects to post a $1.2 billion writedown.

Altogether, mortgage-related writedowns cost the banking industry $40 billion in the third quarter and the fourth looks set to be worse

from cnn

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