AT A GLANCE: UBS, BNP Paribas Add To European Bank Woes

By Daniel | January 30, 2008

AT A GLANCE: UBS, BNP Paribas Add To European Bank Woes

Last Update: 1/30/2008 3:21:36 AM

THE EVENT: Swiss bank UBS AG (UBS), Europe’s fifth-biggest bank by market
capitalization and the world’s largest wealth manager, said in a surprise market
update Wednesday that it will post a fourth-quarter loss of $11.5 billion and new
write-downs of $4 billion.

For the full year 2007 it will suffer its worst ever loss of about $4 billion on
total write-downs of $14 billion related to subprime and mortgage-linked
holdings.

Meanwhile, France’s largest bank by value, BNP Paribas SA (BNPQY), reported a 42%
fall in fourth-quarter net profit to EUR1 billion after taking a EUR589 million
hit, mainly due to the group’s rising counterparty risk on monoline insurers.

THE BACKGROUND: Banks around the world have so far written off over $60 billion
after a collapse in the U.S. housing market meant that bundles of poor credit
quality loans that had been passed around using various financial instruments
have fallen sharply in value.

Europe’s banks had until recently taken much smaller write-downs than their U.S.
counterparts, but are now starting to write down bigger losses as the subprime
crisis worsens.

Sentiment surrounding European banking worsened last week when Societe Generale
SA (SCGLY) announced it had lost EUR4.8 billion due to alleged fraud by one of
its traders. It also took a EUR2.05 billion write-down for its subprime exposure.

WHAT’s NEXT: The fourth-quarter earnings season is underway and analysts expect
other banks to report more write-downs. Some of Europe’s other large banks, like
Germany’s Deutsche Bank AG (DB) and Switzerland’s Credit Suisse (CS) may have
further losses to announce.

Politicians and regulators are weighing in, promising tighter regulations to try
and prevent the crisis from repeating itself. Late Tuesday, the U.K. financial
regulator, the Financial Services Authority warned of more pain to come and of
the strain being put on banks’ business models. Meanwhile, The Federal Bureau of
Investigation opened criminal inquiries into 14 companies as part of an
investigation of the subprime mortgage crisis. It didn’t disclose the companies
being probed.

WHAT THEY SAID: “The (UBS) loss is higher than expected. The additional losses
were especially disconcerting. This will probably lead to further uncertainty,”
said Zuercher Kantonalbank analyst Andreas Venditti.

“Existing business models of some financial institutions are under strain as a
result of adverse market conditions. Prudential risks for many firms are now
greater than they were before market conditions became stressed,” said the U.K.’s
FSA.

-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284;
steve.mcgrath@dowjones.com

(END) Dow Jones Newswires

January 30, 2008 03:21 ET (08:21 GMT)

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