Dark Clouds Hover Above Union Bank Of Switzerland (UBS)

Swiss bank UBS has already had more than the typical share of write-down scares. Yet Monday's report that the bank could be hit by an additional 4 billion Swiss francs ($3.9 billion) of write-downs in the second quarter seemed a little unfounded. UBS (nyse: UBS - news - people ) fell 2.8%, or 0.70 Swiss francs (69 cents), tp at 23.92 Swiss francs ($23.47), on Monday morning in Zurich, after the Swiss newspaper Sonntag quoted anonymous sources within the bank as saying it could be hit by 4 billion Swiss francs in write-downs during the second quarter. But it is far too early to put a number on the size of its write-downs, say analysts, since UBS isn't due to report on its second quarter until August 12. "We simply don't know. Though there are likely to be further write-downs, we aren't even at the end of the first quarter," said Landsbanki-Kepler equities analyst Dirk Becker. So where are UBS' trouble spots? One area, according to Becker, will be the revaluation of its own debt, which led to a $2.0 billion profit in the first quarter. The spread of this has tightened, and depending on what it looks like by the end of the quarter, it could be reversed in its profit and loss statement. However, these losses won't necessarily count as write-downs. The steeply discounted sale of $22.0 billion of mortgage assets to BlackRock in May will help stem losses, though only partially, according to Dirk Hoffman-Becking of Sanford Bernstein. "In terms of write-downs it won't move the dial as much. It's likely that at least BlackRock believed the assets they bought were worth more than the value they paid." The bank is likely to sustain losses from its exposure to monoline insurers like MBIA and Ambac, which had their credit ratings cut last week, its commercial mortgage-backed securities book, and collateralized debt obligations as the valuation on triple-B rated securities has fallen. Its portfolio of student loans, which is hold in the form of auction rate securities, could also sustain losses. UBS, once reputed to be one of the best risk managers, has had subprime-related write-downs of $19.0 billion, surpassed only by Citigroup.