UBS Announces Q1 Loss

Today, UBS AG (UBS) pre-announced a 2009 first quarter loss of CHF2 billion* [CHF - Swiss franc], driven by CHF3.9 billion in write-downs on illiquid assets, higher credit losses and valuation losses on assets transferred to the Swiss National Bank. This compares to a CHF11.6 billion loss in 2008’s first quarter and our estimate of CHF890 million in earnings for the quarter. UBS will report full first quarter results on May 5.

UBS has announced cost cuts of CHF3.5-4.0 billion to be achieved by the end of 2010, largely related to a 12% reduction in the workforce to 67,500 employees from 76,200 at the end of March.

The company also promised to exit high-risk and unsatisfactory businesses, and is now conducting a review to determine those operations that will be saved and those that will be cut back.

More unsettling was the announcement that the company is continuing to experience net money outflows in its asset management businesses. The Wealth Management & Swiss Bank recorded a net outflow of approximately CHF23 billion. Positively, Wealth Management Americas posted net new money of around CHF16 billion.

The company’s capital position continues solid, with an expected a Tier 1 capital ratio of roughly 10% at the end of March 2009, though this is down 150 basis points from the 11.5% reported at year-end 2008 due to the first quarter loss.

We currently have a Hold on UBS and note that the Zacks rank is 5, indicating near-term selling pressure on the shares.

Our estimates are under review.

* US$1=CHF1.14

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