UBS break-up moves closer as credit clouds darken

By Thomas Atkins - Analysis

ZURICH (Reuters) - A humiliating break-up of Swiss flagship bank UBS AG (UBSN.VX: Quote, Profile, Research) (UBS.N: Quote, Profile, Research) is moving closer as the likelihood of multi-billion-dollar writedowns increases in tandem with deepening problems in the credit markets.

UBS shares tumbled as much as 5 percent on Monday, off 60 percent from less than one year ago, to levels not seen since March 2003, in a clear signal investors anticipate more bad news from the world's largest manager of wealthy people's fortunes.

It faces up to $15 billion in credit-related losses this year, analysts say, on top of the $18 billion writedowns in 2007, increasing pressure for a break-up or a radical overhaul.

"Credit markets are under more pressure every day and the worst is not over," said Madeleine Hofmann, a buyside banking analyst with bank Julius Baer.

While that would be an enormous blow to the once-proud bank -- which went cap-in-hand to shareholders and foreign investors last week in an emergency effort to raise capital -- it could be necessary to put the credit crisis behind it.

Analysts are discussing new scenarios beyond UBS raising more capital to supplement the 19 billion Swiss francs ($18.3 billion) approved last week.

These include whether it will be broken up between the strong parts and the weak, hiving off ailing assets into a "bad bank", selling key parts of its U.S. operations, or spinning off other parts of its core wealth management franchise.

If hit by further losses, as expected, UBS may be forced to sell its U.S. wealth management arm, built up expensively through purchases such as that of Paine Webber in 2000.