UBS Hit By Downgrades; SwissRe Takes $1B Writedown

Shares in UBS AG (UBS) slipped 2.4% Monday in Zurich after influential CIBC financial analyst Meredith Whitney downgraded the company's shares to Sector Performer from Sector Outperformer and cut her 2008 earnings outlook by a third, predicting writedowns on the bank's riskier investments. We believe UBS will likely take roughly 8 billion Swiss francs in aggregate write-downs over the next five quarters but will do so by managing such against earnings from its Global Wealth Management division so as to not abruptly shock its capital base and therefore risk its highly coveted credit ratings," Whitney wrote. The note comes in contrast to UBS's Thursday statement that it, "does not expect writedowns greater than those implied in its outlook which means writedown numbers like $8 billion are not expected," (Reuters). Also Monday, Dresdner Kleinwort downgraded UBS to Hold from Buy, citing potential subprime writedowns of 11 billion Swiss francs ($9.84 billion) (Bloomberg).

Separately, reinsurer Swiss Re (SWCEY.PK) became the first reinsurer to take a major hit from the subprime mortgage crisis when it said it would take a $1 billion writedown on exposure to credit default swaps sold to a client previously. Swift downgrades by credit ratings agencies and a lack of liquidity "has resulted in a significant and material reduction of the value of the underlying assets", Swiss Re said. "You have to ask which reinsurance groups have similar announcements to make. Now comes the question whether this new-found transparency will be welcomed or whether the already weak shares will be punished further," analysts at bank Wegelin said (Reuters).

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