Subprime mortgage ripples continue - UBS writes off $3.4B

In breaking news, Reuters reports that Swiss bank UBS 'fessed up to $3.4B in losses, affected by the weakness in the credit markets kicked off by the spectacular collapse of the subprime mortgage market this summer.

The AP coverage makes the connection quite explicit --

"Following a write down of positions in fixed income, rates and currencies, mainly related to deteriorating conditions in the U.S. subprime residential mortgage market, UBS is likely to record an overall group pretax loss..."

While the writedown sent other bank's shares down, the real kicker in the story is what is still in store --

"The loss underscores the depth of the crisis -- which has already seen central banks inject record amounts of liquidity into the markets to keep the financial system functioning -- and underscores uncertainties at rival banks, who may also be forced to unveil losses ahead of their scheduled results announcements.

"The critical time will be over in the next six months," Chief Executive Marcel Rohner said in a conference call with journalists."

And that is just on the banks' side of the story.

Combine that with the fact that we have about a year's worth of first-time 'resets' in the subprime ARMs written over the past two years in the pipeline, and we may yet have the recipe for a perfect storm.

Pay attention.

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• Reuters: "UBS to Write Off $3.4 Billion"
• AP: "UBS Forecasts Q3 Pretax Loss Up to $690M"
  

-- Dan Damon

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