Swiss bank UBS became the biggest European casualty of the US subprime mortgage crisis yesterday when it announced a writedown of $10 billion (€6.8 billion) in the value of its assets and an emergency injection of funds from Singapore and the Middle East.
However, markets reacted positively, despite the admission that UBS had further losses due to the US subprime crisis. The bank, Europe's fourth largest, said the writedown would help eliminate speculation about any further exposure to the subprime crisis.
UK bank Lloyds TSB said it was writing down £200 million (€278 million) in subprime-linked investments but was on track to meet analysts' estimates of a 7 per cent rise in profits to £4.1 billion (€5.7 billion).
Another casualty of the credit crunch, Société Générale, France's second-largest bank, will bail out a $4.3 billion fund by taking on to its balance sheet those assets related to the US subprime mortgage crisis to avoid a fire sale. French banks have so far reported smaller losses from subprime investments than their US and other European competitors.
In October, UBS warned of further write-downs on investments linked to US subprime mortgages after taking charges of €2.5 billion (4.2 billion Swiss francs).
The bank said yesterday its emergency funding was coming from the Singapore government, which is taking a 9 per cent stake in the bank, and an unidentified Middle East investor.
The deal mirrors another secured two weeks ago by US- based Citigroup, which expects to write off between $8 billion and $11 billion, and which secured funding from the Abu Dhabi Investment Authority.
"In our judgment these write-downs will create maximum clarity on this issue and will have the effect of substantially eliminating speculation," said UBS chief executive Marcel Rohner.
The bank is likely to make its first full-year loss in a decade.
European equities gained for the fourth session in a row and reached their highest level in five weeks, as financial stocks rose on expectations that the worst might be over. Shares in UBS shares initially fell almost 3 per cent as investors grew alarmed, but the share price later recovered on relief that the worst of UBS's subprime woes could be over. UBS closed 1.4 per cent higher.
Lloyds TSB gained more than 3.5 per cent to 504.5p. The FTSE 100 closed up 10.5 points, or 0.16 per cent, at 6,565 points.
The Iseq rose 130 points - almost 2 per cent - to close at 7.371 yesterday, with AIB adding 37 cent to finish at €16.10, up 2.3 per cent, and Anglo Irish Bank closing up 2.8 per cent at €11.56.
Building stocks also rose strongly with CRH climbing €1.18 - or 4.6 per cent - to close at €26.93. - ( Additional reporting - Reuters and Bloomberg)
