UBS May Avoid Losses In 2Q, Won't Need Fresh Capital

New York, NY (AHN) - Shares of UBS AG, which is the largest European bank hardest hit by the U.S. subprime contagion, gained after it reported that the firm may avoid losses in the second quarter.

Just after the Swiss banking giant was reported by Citigroup Inc. to post further writedowns, UBS said it may break-even in the second quarter.

Citigroup analyst Jeremy Sigee projected that UBS still own about $83 billion worth of subprime-related holdings and expected it to make second-quarter writedowns of about $7 billion, which may have prompted the need to raise fresh capital.

UBS added that the firm expects its Tier 1 capital ratio, which is a measure of capital adequacy, to reach approximately 11.5 percent at the end of the quarter. So the bank "has no need to raise new equity."

Another report early this month by the newspaper Sonntag said the European bank will post as much as $3.9 billion in losses in the second quarter.

"The results reflect positive contributions from global wealth management and business banking and from global asset management, offset by a loss in the investment bank," UBS said in a statement.

So far, the firm has written down more than $37 billion in assets since the start of the subprime crisis last summer.

The bank also said that it may avoid losses in the second quarter after a $2.93 billion tax credit, offsetting further writedowns.

To reduce more expenses, the firm plans to slash 5,500 jobs and close businesses at the investment bank, which was announced by Chief Executive Officer Marcel Rohner.

The financial industry, led by banks, have been the worst performers this year as market analysts blame the sector for erasing most of the gains from equity markets globally.

Shares of gained by as much as 5 percent before it retreated to 2.5 percent in Swiss trading, pushing up the financial sector higher in European markets.

The firm will report its second quarter results on August 12.