Citigroup, UBS say sub-prime losses damage Q3 results

Citigroup Inc and UBS AG, the largest banks in the US and Europe, said writedowns sparked by the US subprime mortgage meltdown ravaged third-quarter results.

Citigroup, based in New York, said earnings fell about 60 per cent from a year earlier, while Zurich-based UBS reported its first quarterly loss in almost five years and said investment- banking chief Huw Jenkins is stepping down.

Losses on securities related to home loans and leveraged buyouts are exacting a growing toll on Wall Street. Citigroup will write down leveraged loan commitments by $1.4 billion, and reported losses of $1.3 billion before tax on subprime-related assets and $600 million from fixed-income trading.

Credit costs rose by $2.6 billion before tax as loan provisions climbed, the bank said in a statement. UBS had losses on fixed-income securities of more than 4 billion Swiss francs ($3.4 billion) and plans to shed 1,500 jobs.

"This comes as a surprise, but it's positive that we know how big the fallout is,'' said Dieter Buchholz, who helps oversee $107 billion at AIG Private Bank in Zurich, including UBS and Credit Suisse shares.

UBS shares rose 70 centimes, or 1.1 per cent, to 63.3 francs by 3:15 pm in Zurich, after earlier falling as much as 4.3 per cent. The stock is down 15 per cent this year. Citigroup fell to $45.66 in early trading from $46.67 at the close on the New York Stock Exchange on September 28.

'Clear Disappointment'
Profit at Citigroup, which earned $5.5 billion in the third quarter of 2006, may fall to the lowest since the second quarter of 2004. At UBS, the pretax loss, the first reported by any of the world's largest banks, totaled 600 million francs to 800 million francs, the company said today.

"Our expected third-quarter results are a clear disappointment,'' Citigroup Chief Executive Officer Charles Prince said in the statement. "We expect to return to a normal earnings environment in the fourth quarter.''

Analysts had estimated Europe's largest bank by assets would earn as much as 3.3 billion francs. The loss contrasts with Credit Suisse Group, which said today it had a profit of about 1.3 billion francs in the quarter.

A portion of UBS's writedowns are related to securities owned by Dillon Read Capital Management, the hedge fund unit that cost the company $300 million and former CEO Peter Wuffli his job.

"Funds and financial firms relaxed too much and invested aggressively as there was excessive liquidity,'' said Masanao Yoshitake, chief investment officer at Privee Investment Holdings Co in Tokyo. Other banks may follow, he said.

The planned job cuts at UBS account for about 7 per cent of the staff at the investment bank.