UBS (UBS) had an awful quarter. The Swiss financial firm reported a fourth-quarter loss of 12.45 billion Swiss francs ($11.3 billion), compared with profit of 3.41 billion francs in the year-earlier period. Worse, according to MarketWatch "even after these charges, the bank said it still has significant exposure to U.S. mortgage assets."
At the end of the year, UBS still had mortgage-instrument exposure of almost $28 billion and $3.6 billion in exposure to bond insurer issues. While it is unlikely that the company would have to write off all of these assets future damage in the mortgage markets and a lock-down in credit trading could certainly put the bank in a position where its 2008 losses could be well into the billions of dollars.
In terms of the structure of its balance sheet, UBS is not terribly unlike US banks.It is a near-perfect canary in the coal mine. Citigroup (C) took a write-down on mortgage-backed securities of over $18 billion in its fourth quarter. With its current exposure to those markets, it could easily face more losses of similar magnitude.
The UBS warning, which pulled no punches, is red flag for Wall St. The US banking crisis is not over, not by a long shot.
Douglas A. McIntyre
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