BANKING giant UBS unveiled a further $19 billion (£9.6bn) write-down of the value of mortgage-backed risky assets yesterday.
The news sent financial shares soaring on hopes that the level of the hit meant the credit crunch nadir had been reached.
The relief in the sector – that UBS had doubled its write-downs to toxic assets following an earlier $18.4bn provision in 20
07 – also outweighed the news that the Swiss bank was tapping shareholders for £7.6bn in another rights issue.
In buoyant London trading, shares in Royal Bank of Scotland and HBOS leapt 7 per cent and 8 per cent, respectively, adding a collective £4bn to their market values. UBS's shares jumped 7 per cent at one stage in New York following the announcement. They were 3.9 per cent up in late trading.
UBS also revealed that chairman Marcel Ospel was falling on his sword following the write-downs, and would not stand for re-election at next month's shareholder meeting.
Peter Dixon, an economist at Commerzbank, said: "The one saving grace in this is that banks are acting quickly to highlight their exposure.
"The quicker the bad news is out in the open, then the quicker we can start to repair the problems. The Japanese crisis of the early 1990s was exacerbated by the failure of banks to admit the degree of their problems."
UBS's latest rights issue follows a £6.6bn emergency cash injection to the bank by the Singapore government and an unnamed Middle East investor in February.
One banking analyst said: "It's a kitchen sink job. They've separated all their toxic waste. If they're going to finance that then everyone is saying this is the beginning of the end; this is the last capital increase."
The DJ Stoxx European banking sector index rose 3 per cent to its highest for a month and 15 per cent above a multi-year low two weeks ago.
Leigh Goodwin, bank analyst at broker Fox-Pitt Kelton, said: "It's too early to say we're definitely through the worst of this, but it would appear from the market's reaction today to what UBS has done, and from recent interest in buying distressed assets, that maybe we can at least start to see the end of the apparent freefall in certain asset values."
Analysts said the sector's bounce yesterday was also aided by signs that US Treasury secretary Hank Paulson and central bankers were considering radical strategies to boost liquidity.
Banks are hoarding cash in case of emergency and as concern lingers about counterparty risk, which has driven up the cost of borrowing funds.
Simon Maughan, analyst at MF Global, said: "More significant (than UBS] is the anticipation that Paulson is going to lead a global concerted effort to free up the credit crunch.
"For a long time we've been worried about moral hazard … we're now past that point. What we're trying to do now is save the banking system, and the price that banks will pay is tougher regulation."
Ospel was the architect of the £860 million takeover of SG Warburg in the City by Swiss Banking Corporation in 1995, and the later merger of SBC with Union Bank of Switzerland. He had already taken a 90 per cent pay-cut after UBS's disastrous results last year, his pay coming down to £1.3m from £13.4m in 2006.
Ospel will be replaced as chairman by lawyer Peter Kurer, who has been UBS's general counsel since 2001.
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The full article contains 592 words and appears in The Scotsman newspaper.
