More writedowns at UBS

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So this is good news? A further $19bn writedown, a $15bn rights issue and a first quarter loss coupled with the departure of long-time chairman Marcel Ospel inspired a 12 per cent surge in UBS’s share price on Tuesday.

There are, in an it-could-be-worse sort of way, some positive elements. There had been fears that the writedown might be even bigger than it turned out to be; there is probably some relief that the rights issue has been fully underwritten and that existing investors do not face further dilution; and seeing the back of Mr Ospel, the last of UBS’s pre-subprime bosses to leave office, may have helped foster hopes that there will now be a new dawn.

The problem is that UBS’s new dawns are beginning to feel like Groundhog Day. The bank’s first big writedowns were thought at the time to be conservative enough to allow it to draw a line in the sand. Still, UBS has now written down something approaching $40bn and believes its subprime and similar securities will, ultimately, be worth more than their marked-down prices. The planned rights issue will allow management to hold on to such assets rather than sell at distressed prices.

That is all very well. But the next worry is just how quickly UBS can return to profitability. We are told that “the new leadership of the investment bank will further focus on resizing the business” – in other words, the bank is busily cutting costs as revenues dwindle. Working out where that will leave profits this year, even assuming markets stabilise, has become a very tricky business. Morgan Stanley suggests that 2008 investment banking industry revenues, excluding markdowns, are likely to be down at least 20 per cent. UBS, one of the hardest-hit victims of the credit crunch, will have to hack costs ferociously. Any new dawn is likely to be a bloody one.

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