UBS shares sink anew on writedown fears

By Thomas Atkins

ZURICH (Reuters) - Swiss bank UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz) came under renewed pressure on Thursday due to speculation it had sold a huge portfolio of risky mortgages at a deep discount and that the scale of its subprime losses was rapidly mounting.

Analysts said they believed UBS had sold its Alt-A investments -- U.S. mortgages ranked between prime and subprime -- to bond manager Pimco (ALVG.DE: Quote, Profile, Research, Stock Buzz) for 70 cents to the dollar, taking a deep discount on a 26.6 billion Swiss franc ($25.7 billion) portfolio.

Analysts also see the ailing bank making further writedowns on a massive 400 billion franc portfolio of repurchase agreements as it rushes to cut its exposure to the capital markets in general and to risky assets in particular.

While selling the Alt-A assets would free UBS of some of the uncertainty that has dogged its share price, the cost could be heavy, entailing additional losses. By contrast, any writedown on its repo portfolio may raise fears of more losses to come.

"Managing down a 2.3 trillion Swiss franc mortgage-heavy balance sheet in a turning credit cycle will be costly and risky and could overhang the earnings power of business," Morgan Stanley said in a note to clients.

UBS, the European bank hit hardest by the credit crisis, has said it is well positioned to withstand further losses after raising 19 billion francs in emergency capital. Analysts largely agree that the bank could take more big hits without needing more emergency cash from shareholders or new investors.

But fears that the bank has become a hostage to fortune -- unable to offload about $90 billion in risky investments and subject to the whims of the U.S. real estate sector -- continue to weigh on its shares.

"UBS may choose to sell down its workout book of mortgages, taking larger upfront losses to reduce uncertainty on capital ratios," Morgan Stanley said.  Continued...