UBS, ONE of the biggest casualties of the credit crisis, prepared investors yesterday for a heavy loss in the fourth quarter as it warned of weak markets and one-off accounting factors linked to the value of its own debt.
The world's biggest wealth manager did not issue a specific profits warning. But John Cryan, chief financial officer, said exceptional factors alongside difficult markets could prompt a hefty loss, in spite of the group having cut costs, reduced risks and shifted toxic credits off the balance sheet.
Last month's SFr6 billion (€3.9 billion) investment in the bank by the Swiss government, and a deal to transfer toxic assets to Switzerland's central bank, have improved sentiment.
However, Mr Cryan said that if such confidence - reflected in higher values for UBS's debt - persisted, the bank could be obliged to take a significant charge under accounting rules requiring companies to reflect the value of repurchasing their own debt in their accounts.
"Credit spreads on UBS debt have narrowed. If this persists,some or most of the accumulated SFr4.8 billion own-credit gain will reverse," the bank said.
Fourth-quarter earnings will also be affected by a complex accounting requirement linked to the asset transfer to the central bank, resulting in a loss of up to SFr4 billion.
Mr Cryan also noted that UBS could face a charge on the goodwill linked to its investment bank, which is being scaled down.
UBS shares were 4 per cent higher yesterday at SFr19.70, somewhat ahead of Switzerland's main equity index, after the bank confirmed third-quarter results previewed in October. - ( Financial Times service)
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