On Tuesday, April 1^st 2008, UBS AG made its biggeest whopper of an announcement yet: If $10 billion was not enough for the fourth quarter 2007 write-downs, expect $19 billion more for the first quarter of 2008. As Lars wrote back in January 2008,

Is it just TCM? But did not a BILLION dollars used to mean an obscenely large, unbelievable amount of money? In a good year, a large global investment bank might make several billion dollars in earnings. How then is the market so numb to losses of three, five, seven, ten and even more billions in a single quarter? With such tremendous losses, any sane investor really has to question whether institutions such as UBS, Merrill Lynch, Citigroup, Morgan Stanley, Bear Stearns, CIBC and other global investment banks should be rated investment grade????

As the readers of the Toomre Capital Markets LLC ("TCM") Insights section might note, Lars Toomre has previously written about the travails on one of his former employers, UBS AG, in the posts UBS: Still Cannot Quantify Its Exposure to Sub-prime Crisis and What is UBS' Remaining Subprime/CDO exposure?. Before those posts, TCM had written UBS Has a "SMALL" VaR Risk Modeling Problem and UBS: What's Another $10 Billion Dollar Loss Worth?. These posts were made after UBS AG announced on December 10^th 2007 that it was going to be taking more about $10 billion in write-downs on its various mortgage security holdings.

As Lars described then, he can still hear Lew Glucksman (former Lehman Brothers chairman and head of Capital Markets when Dick Fuld headed money market trading) chortling "See you never can trust these financial institutions… Who knows what the fucking balance sheet is worth? Would you buy the common stock of a blind pool? NO!!!!"

Back on Saturday January 10^th 2008, The Financial Times reported in a story written by Miles Costello that UBS management apparently does not know what its CDO/sub-prime exposure is either. The article is entitled UBS admits that it still cannot quantify its exposure to sub-prime crisis and is well worth reading in full. A key section of UBS Management's January 11th 2008 letter to investors reads: "We cannot, at this time, accurately predict the future development of US residential mortgage markets and therefore the ultimate impact on our positions in sub-prime mortgage related securities," the bank told investors in a letter signed by Marcel Ospel, the chairman, and Marcel Rohner, the chief executive. At the time of that article, Lars wrote:

Something seems mighty odd with UBS' on-going disclosures about its CDO/sub-prime exposures. TCM strongly suspects that UBS has been less than completely forthcoming and that the CDO/subprime losses will be larger than the market consensus currently expects. The saying used to be "something does not smell right in Denmark." Perhaps it should be adjusted to say "something does not smell right in Zurich"? Time will tell.

Well, at least with this write-down announcement Chairman Marcel Ospel had the courage to not seek reelection. Why he did not just resign several months ago is anyone's guess! His legacy though will be something close to $40 BILLION in write-downs!! Toomre Captial Markets LLC cannot help but commend UBS on the superb progress that it has made in risk management over the years. The Enterprise Risk Management

function was not good when rates backed up in 1994, it was horrendous in 1998 during the Long-Term Capital Management debacle, and during the 2007-2008 credit crisis period, (to be charitable) it has been "a bit wanting".

According to The Wall Street Journal, "UBS is whittling down its exposure to risky assets. Over the first quarter, subprime positions fell to $15 billion, from $27.6 billion at year-end, while Alt-A positions -- those that are slightly less risky than subprime loans -- were reduced to $16 billion from $26.6 billion. However, the bank's exposure to auction-rate securities rose to roughly $11 billion, from $5.9 billion at year-end." Efforts will be made to minimize exposure and "will be accompanied by an as-yet undisclosed number of job cuts in investment banking, particularly in the hard-hit fixed-income unit, and a further tightening of risk and reduction of the bank's balance sheet. UBS declined to be more specific about job cuts, saying decisions would be taken in coming weeks."

To replenish its capital, according to The New York Times, UBS is issuing a $15 billion rights issue was underwritten by a syndicate of banks led by JPMorgan Chase, Morgan Stanley, BNP Paribas and Goldman Sachs. This rights issue apparently has been fully subscribed leaving the underwriters with virtually no exposure. Perhaps ominously, "UBS said it has remaining exposure to the subprime market of about $15 billion, down from $27.6 billion on Dec. 31, while its exposure to so-called Alt-A positions declined to $16 billion from $26.6 billion. Alt-A loans are given to customers with little credit history or minor credit problems."

The reader can get more details about this round of write-downs from the UBS Press Release. Toomre Capital Markets LLC wonders though when UBS will be issuing the press release that they no longer have a fixed-income sales and trading business. Or perhaps that will never come as this global bank continues to demonstrate its complete and utter (in)competence? One has to wonder what part John Costas and the ill-fated Dillon Read Capital Management had in these losses.

And yes, though this is posted on April 1^st 2008, this whole incomprehensible story is not a joke! What were these jokers thinking in taking on so much risk???