Mortgage 'fire sale' hits UBS shares

UBS shares fell to their lowest for more than five years yesterday on concern that the ailing Swiss banking giant had sold SFr25bn (£12bn) of risky mortgages at a big discount and faced further writedowns from the US sub-prime crisis.

Analysts at JPMorgan said in a note that UBS had probably sold off its portfolio of "Alt-A" US mortgages, which are ranked between sub-prime and prime, in a "fire sale". Prices of about 70c on the dollar were realistic, JPMorgan said.

JPMorgan increased its forecast for UBS's 2008 writedowns to SFr18.5bn from SFr15bn. Morgan Stanley predicted worst-case writedowns of up to $25bn (£12.4bn). UBS wrote down about $19bn last year, pushing the bank to its first annual loss since it was formed from a merger in 1998.

Shares of Switzerland's biggest bank have lost 41 per cent this year, valuing the company at SFr63.7bn.

Kian Abouhossein at JPMorgan wrote that a sell-off on such a scale would set "a new strategic direction" after fairly orderly asset disposals by banks so far in the credit crunch. Alt-A mortgages have not experienced defaults at the same level as sub-prime loans but their prices have fallen dramatically in recent weeks.

Concerns about further massive writedowns also prompted renewed fears about UBS's capital position, which it has already bolstered with a SFr13bn sale of convertible bonds. Pimco, the US bond giant rumoured as a buyer for the Alt-A assets, said last night it had not purchased the securities. Dresdner Kleinwort analysts said a sale of the Alt-A assets in one go would be unlikely because of the complexity of checking the quality of the assets.

Observers also noted that a $5bn writedown from selling the assets at a discount would be big enough to trigger an immediate profits warning by UBS. UBS declined to comment.

UBS is the worst-hit of Europe's major banks by the financial crisis after it made a late surge into the structured credit market just before defaults on US sub-prime mortgages started to surge. The world's biggest wealth manager is battling to keep the confidence of wealthy investors after it was rocked by repeated bad news at its investment banking business.

Speculation is mounting that the bank could go for a restructuring such as a separate listing for its flagship international private banking business. UBS shares fell 4.7 per cent to SFr30.74.