We are reducing our recommendation on UBS AG (UBS) to Hold from Buy. As pre-announced on January 30, 2008, UBS posted a fourth quarter net loss of CHF12.5 billion, the result of CHF15.6 billion write-down in its US residential mortgage portfolio. More importantly, UBS released details (some for the first time) regarding its risk exposures.
By our count, the company has about US$66 billion in investment risk exposures, including US$27.6 billion in subprime, US$26.6 billion in Alt-A, and US$11.2 billion in reference-linked notes. In addition, UBS has US$2.9 billion of exposure to monoline insurers.
We believe additional write-downs and losses are likely given continuing problems in the US mortgage market, which is the reason for our downgrade. UBS will hold an Extraordinary General Meeting in late February to vote on controversial capital-raising proposals.
Read the full analyst report on UBS.
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