UBS Reports $11 Billion Loss, Plans To Cut Jobs

NEW YORK, May 6 -- UBS, the Swiss banking giant struck hard by the U.S. subprime mortgage mess, said Tuesday that it would cut 2,600 jobs from its troubled investment banking unit after recording an $11 billion loss in the first quarter.

The job cuts follow the 1,500 investment banking jobs shed since last fall and are part of the bank's plan to reduce its workforce by 5,500, or 7 percent, by the middle of next year. Most of the reduction in investment banking jobs is expected to occur in the United States and Britain. The bank said most of the remainder of the cuts would come from attrition and internal redeployment across the bank's units.

UBS also said that it had reached an agreement with U.S. asset manager BlackRock to sell it $15 billion in distressed mortgage assets, a move that would help the bank shrink its exposure to risky assets.

Hurting the bank's earnings were $19 billion in write-downs on subprime-mortgage-related securities and other soured investments. The losses, in line with guidance the bank gave last month, brought the total amount of write-downs to $38 billion for UBS, and more than $300 billion for banks globally.

UBS has been harder hit by the credit crisis than any other European bank, and its write-downs rival those of Citigroup, which has reported the sharpest decline in the value of assets on its books.

Marcel Rohner, UBS's chief executive, said that though confidence in the fragile credit market is improving, "we expect the environment to remain difficult with a continuing unfavorable global economic climate, deleveraging by institutional and private investors, slower wealth creation and lower trading and capital market activity."

Besides the losses in the investment banking unit, also troubling were the slowing flows of new funds at the core wealth management business, as well as a net overall outflow of $12.2 billion, a sign that the reputation of the parent company may have been damaged by the hefty write-downs, analysts said.

"People are basically responding to headline pressure at UBS and taking money out," said Michael Andrews, an analyst with SNL Financial. "The impact of the investment banking group has an effect on the entire whole by bringing down the brand's value."

Also hurting Tuesday from large client withdrawals was Baltimore-based asset manager Legg Mason, which posted its first quarterly loss in its 25 years as a public company.

Legg Mason reported a net loss of $256 million ($1.81 a share) in the fiscal fourth quarter on revenue of $1.07 billion.

The results, which were worse than Wall Street estimates, contrasted with a profit of $173 million ($1.19) in the comparable period a year ago.

"This past quarter was among the most difficult we have ever faced and we are disappointed with our results," said Mark R. Fetting, Legg Mason's chief executive. "We remain a fundamentally strong firm today, but we know we have work to do. . . . [We] know that we need our U.S. equity managers to return to form, and this is a top priority."

Dragging down earnings was a $291 million charge to bail out money market funds exposed to risky subprime mortgages.

Assets under management fell to $950 billion during the quarter, down $48 billion or 5 percent from the end of last year. The decline came as clients took out a net $19.2 billion in assets.

Stock funds at Legg Mason, including the once high-flying Legg Mason Value Trust managed by Bill Miller, have faced investor withdrawals as they post below-average returns.

Matthew Snowling, an analyst at Friedman, Billings, Ramsey in Arlington, said reversing the outflows could take a year or two. "First of all, you're going to have to post better performance results, then go out there and sell that performance," he said, adding, "I don't think there's a quick fix out there."

Legg Mason shares fell 10.3 percent, to $56.30, while UBS closed down 4.5 percent, to 35.22 francs, in Zurich.

The results from the institutions highlight the headwinds facing the entire financial sector. On Monday, the Federal Reserve reported that the proportion of U.S. banks tightening their lending standards was near historic highs in almost all loan categories.

The Fed's quarterly survey of banks' senior loan officers is a closely watched gauge of lending practices. Conducted in April, the most recent survey shows that the credit crunch is widening far beyond subprime mortgages and into areas such as home-equity lines of credit, credit cards and student loans. The reluctance to lend could undermine spending by businesses and consumers at a time when the economy is already flagging.

According to the Fed report, 55 percent of 56 domestic banks surveyed said they tightened standards on loans to large and medium-size businesses in the previous three months.

Roughly a third of the banks said they tightened standards on credit card loans, while about 45 percent reported tougher restrictions on other types of consumer loans, up from around 30 percent.

For banks offering student loans under the Federal Family Education Loan Program, 55 percent expected to reduce their lending this fall compared with last fall.

About 70 percent said they tightened standards for home-equity lines of credit.