UBS Up on Fading Subprime Fear, Stakebuilding Talk

By Andrew Hurst, European Banking Correspondent

ZURICH (Reuters) - Shares in Swiss-based bank UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz) jumped on hopes that profitability will improve after its third-quarter loss and that Asian, Gulf and Russian investors are targeting European banks hit by the subprime crisis.

"UBS shares have been massively oversold," said one Zurich trader. "Another thing is the speculation over stake taking from the Chinese, Arabs or Russians."

UBS, whose shares have fallen 17 percent so far this month, were up 5.1 percent at 53.74 francs by 1407 GMT on Wednesday, making it Europe's leading blue-chip gainer. The DJ Stoxx index of European banks was up 2.6 percent at that time.

Analysts at bank Credit Suisse raised their investor recommendation for UBS to "buy," saying that recent falls in UBS's share price made the group good value and that the bank's exposure to more subprime risk was likely to be limited.

Many investors also seem increasingly inclined to lend credence to UBS's repeated guidance to analysts that it does not anticipate massive writedowns on subprime-related exposures in the fourth quarter.

"We are also less than convinced that big further writedowns will actually be necessary. Unlike some of its peers, which have taken much bigger writedowns on CDO exposure, UBS has no material exposure to conduits," Credit Suisse said in a note.

UBS last month announced its first group quarterly loss in five years and warned that its investment bank would continue to lose money in the final three months of the year although the bank expected to make money at group level.

SCEPTICISM  Continued...