Swiss banking giant UBS on Friday warned of a "difficult" year ahead after losing 10 billion dollars (6.8 billion euros) in the US subprime mortgage crisis. "The problems that the financial industry faces have not evaporated with the turn of the year ... 2008 is likely to be another generally difficult year," the bank said in a letter to shareholders.
UBS in December turned to Singapore's state investment arm (GIC) and an unnamed Middle Eastern investor to help restore its balance sheet, which had been badly hit by losses in the US mortgage crisis.
GIC said it would inject 11 billion Swiss francs into UBS, giving it a stake of around nine percent and thus making it the largest single shareholder, while the Middle Eastern investor was to put up two billion Swiss francs. The bank said it was a "valuable demonstration of confidence to bring in highly reputable, stable, long-term financial investors."
Some shareholders have voiced unhappiness with the plans to raise funds from foreign, state-controlled investment authorities, fearing the terms of the deal put existing investors at a disadvantage. UBS warned that the full impact of the subprime crisis had yet to be felt.
"We cannot, at this time, accurately predict the future development of US residential mortgage markets and therefore the ultimate impact on our positions in subprime mortgage related securities," the bank said. However it said that "appropriate lessons have been drawn" from the turbulence in terms of personnel and systems. "UBS will become a stronger firm as a result of these changes," the bank pledged.
Earlier this week, CEO Marcel Rohner rejected any hiving off of UBS's investment banking arm, primarily responsible for its subprime exposure, saying the unit "lies at the heart" of the bank's activities.