Investment bank warns of losses

The summer turmoil in financial markets will spark third-quarter losses of up to 800m Swiss francs (€481m), investment bank UBS warned today.

The Swiss giant has taken the hit from its exposure to bonds based on sub-prime US mortgages, as spiralling default levels have triggered a crisis of confidence across global stock exchanges.

The group now expects an overall loss of between 600m-800m Swiss francs (€360.8m-€481m) from July to September.

The sub-prime exposure will also lead to 4bn (€2.4bn) in write-downs at UBS's fixed income, rates and currencies division.

UBS said: "The deterioration in the US sub-prime residential mortgage-backed securities market, especially in August, was more sudden and more severe than in recent history."

The sub-prime blow to UBS comes after a strong first half for the bank and represents its first quarterly loss for nine years.

Other investment banks are expected to follow suit in reporting disappointing results during a period where fear has gripped financial markets.

UBS said the freeze in the market for mortgage-backed securities had made it impossible to value its sub-prime holdings.

The bank added that it took a "cautious view" of future developments in the US mortgage market.

Despite the sub-prime losses, UBS said it still expected pre-tax profits of around 10bn Swiss francs (€6bn) for the first nine months of the year.

But the difficulties have prompted a management shake-up at UBS, after group chief executive Marcel Rohner described the latest quarter's result as "unsatisfactory".

Mr Rohner is taking personal control of the investment banking division as chairman and chief executive "for the foreseeable future".

The UBS boss is also accelerating plans to cut costs at the investment banking operation. with overall staff numbers set to fall by 1,500 by the end of the year.

He added: "I am confident that, with these changes and by properly absorbing the lessons of this quarter, we will become a stronger bank."