UBS reveals new U.S. loans exposure

ZURICH (Reuters) - Swiss bank UBS has revealed $26.6 billion in exposure to risky U.S. mortgages distinct from subprime loans, increasing its vulnerability to the global credit crisis and sending its shares sharply lower.

Shares in the bank, which declined to say if it would return to profit in early 2008, were trading down 5.9 percent at 38.46 francs at 5:45 a.m. EST.

UBS said on Thursday the newly unveiled exposure, announced together with full-year and fourth-quarter results, was to so-called Alt-A mortgages, which are of higher quality than subprime loans but also considered risky.

UBS has taken about $18 billion of dollars in write-downs on its exposure to U.S. subprime mortgages, which at the end of December amounted to a net $27.594 billion, making it one of the biggest casualties of the global credit crunch.

Chief Executive Marcel Rohner said he could not say if UBS would return to profit in the first quarter, after posting a fourth-quarter loss roughly in line with guidance given at the time of the bank's profit warning last month.

Analysts said UBS could report more losses in the first quarter on subprime exposure it has hived off into a special "workout portfolio" in order to sell the securities.

"There will be a separate workout book, and that will presumably be separately reported. I would imagine that would make a loss in the first quarter," said Derek Chambers at Standard & Poor's Equity Research.

The bank's shares have lost half their value since the middle of last year, when a credit crisis triggered by a meltdown in subprime mortgages started to gather pace.

UBS reported a net fourth-quarter loss of 12.451 billion Swiss franc ($11.3 billion) and said it lost 4.384 billion francs for the year, in line with analysts' forecasts.

UBS Chief Financial Officer Marco Suter also said Singapore and an unnamed Middle East investor, who both agreed in December to provide a 13 billion Swiss franc capital injection, were still committed to subscribing to a mandatory convertible note.

Shareholders will be asked to approve the capital increase at an extraordinary shareholders' meeting on February 27.

Rumors that Singapore was having second thoughts about the convertible issue have swirled in recent days.

WRITEDOWN BREAKDOWN

The bank gave a detailed breakdown of $13.4 billion of write-downs made in the fourth quarter. This was slightly less than UBS's previous tally of fourth-quarter write-downs of $14.4 billion.

UBS wrote down $4 billion of its subprime exposure in the third quarter.

The bank took a $2 billion charge on its exposure to the Alt-A mortgages. It also took a charge of $871 million on credit protection bought from monoline bond insurers.

Its Chief Financial Officer Marco Suter said it had net exposure of $3.6 billion to monoline bond insurers -- which insure interest and capital payments on bonds and sell protection on collateralized debt vehicles -- businesses that have looked increasingly fragile as the credit crisis spreads.

In addition, it took a $9.6 billion charge on subprime mortgages and a $1.2 billion write-down on subprime and Alt-A components of a securities program called a U.S. reference linked note.

More than half of the Alt-A write-down was taken against a higher risk category of the debt worth $5.4 billion at the end of December.

The bank reported its key wealth management business appeared to hold up in the fourth quarter, with net new money inflows of 31.7 billion francs, above analysts' average forecasts of 30 billion francs.

Some investors were unnerved that money inflows appeared to lose momentum towards the end of the year after UBS said in December that net new money in October and November alone had topped an estimated 30 billion francs.

"People are asking: is contagion going to spread to asset management?" said Derek Chambers.

Rohner told an analysts' presentation that net new money inflows into its wealth management business was positive in January.

The world's largest wealth manager had suffered fourth-quarter outflows of 16.2 billion francs from its global asset management business as institutional clients pulled money out of equities, fixed-income and multi-asset products.

Some analysts had predicted that UBS's $18.4 billion of subprime write-downs would frighten away wealthy clients.

Rohner said the bank continued to reduce exposure in January, but declined to make a forecast for first-quarter results, saying market conditions were particularly challenging.

(Additional reporting by Thomas Atkins and Douwe Miedema, editing by Will Waterman)