UBS on Monday became the second big investment bank in a fortnight to be bailed out by a sovereign wealth fund when it announced a SFr19.4bn ($17.2bn) recapitalisation plan after revealing another $10bn of losses on subprime mortgage securities.

UBS was forced to turn to the Government of Singapore Investment Corporation (GIC) and an unnamed investor from the Middle East for funds to shore up its balance sheet after the fresh losses emerged.

However, hopes that the fresh capital and writedowns might mark a turning point for UBS sent its shares up nearly 2 per cent even though the Zurich-based bank warned that it could announce its first full-year loss since it was created a decade ago.

That warning overturned a forecast made only in October that UBS would return to profitability in the fourth quarter, after posting its first quarterly loss in five years in the previous three-month period because of subprime losses.

Marcel Ospel, UBS chairman, batted away suggestions that his credibility had been undermined by the events.

“The firm wants me to stay,” he said. “I wanted to be part of the solution and continue to contribute to the success of this firm. I would be a coward if I left now.”

Mr Ospel added that he neither desired nor expected a bonus for the current year.

In a reprise of Abu Dhabi’s $7.5bn investment in Citigroup late last month, GIC agreed to inject SFr11bn while an unnamed Middle East investor will put up a further SFr2bn, both via mandatory convertible bonds.

UBS’s latest guidance implies fourth-quarter losses could exceed the SFr7.7bn earned after tax in the first nine months of this year.

The bank would further boost its Tier 1 capital by SFr2bn by selling unissued shares, previously due to be cancelled, and by another SFr4.4bn by paying its dividend for 2007 in stock instead of cash. UBS said the combined moves would lift the bank’s Tier 1 capital ratio to more than 12 per cent.

Marcel Rohner, chief executive, also defended UBS’s valuation of its subprime portfolio that led to October’s profits warning, saying the requirement for further writedowns had become apparent during late November.

“In our judgment, these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation,” he said.

Huw van Steenis, analyst at Morgan Stanley, said UBS had “topped up the tank” at the cost of a potential 26 per cent dilution to earnings per share. He estimated that UBS could take another SFr6bn of losses while maintaining a Tier 1 ratio above 10 per cent.

“Some shareholders feel overly diluted, notwithstanding the new footing. UBS has given itself a good cushion if it wants to take more writedowns, not necessarily in subprime,” he said. “As the bank shrinks the balance sheet it wants to be able to absorb hits elsewhere.”

Mr Ospel said the bank was underscoring its commitment to be among the best capitalised in the world in support of its wealth and asset management business, its other core activity alongside investment banking.

Net new money in wealth management reached a record SFr30bn in October and November, heralding the best money-gathering quarter in the bank’s history.

“We have had the best fourth quarter ever in wealth management,” Mr Ospel said.

Mr Rohner said a key reason behind the recapitalisation plan was to reassure private banking clients. “We think it’s very important for the wealth management business to operate with a strong capital base. Our wealth management clients are sensitive to that. It puts us in a position to absorb future shocks.”