UBS says has enough capital to face market shocks

The logo of Swiss UBS bank is seen behind a construction fence in front of an office in Zurich in this August 19, 2008 file photo.

ZURICH (Reuters) - Swiss bank UBS AG sought to reassure investors rattled by the collapse of U.S. investment bank Lehman Brothers on Monday, saying it had enough capital to face this and future market crises.

News that lack of liquidity had forced Lehman to file for bankruptcy protection dragged down financial sector stocks worldwide.

But UBS shares fell twice as much as the overall European banks' stock index, dented by media reports that it will have to write down another $5 billion on its risky investments in the second half of the year.

"UBS took measures earlier this year and strengthened its capital position in order to be prepared to absorb further shocks to the market," a UBS spokesman said when asked about the impact of Lehman's failure.

UBS also noted that it was among the 10 banks willing to establish a $70 billion facility to bolster worldwide liquidity, a move that shows the bank is comfortable with its liquidity base.

UBS, the European bank hardest-hit by the global credit crisis, launched a rights issue in May worth $15.6 billion to help rebuild its capital base. Its Tier 1 ratio stood at 11.6 percent at the end of June.

UBS shares traded down 17.7 percent at 19.33 Swiss francs at 1253 GMT while the DJ Stoxx European banks index was down 8.1 percent. UBS shares had rallied recently after losing two-thirds of their value in the last year.

UBS's immediate rival Credit Suisse was down 9.3 percent.

UBS RESTRUCTURING

UBS announced last month writedowns had climbed a further $5 billion in the second quarter to top $42 billion, and said it was splitting the investment bank that had dragged it into the red from its core wealth management business.

Panagiotis Spiliopoulos, a bank analyst at Bank Vontobel, said the fact most of the major investment banks were now owned by bigger groups should give the sector some stability.

"This consolidation process could increase the chances for UBS to eventually find a buyer for investment banking," he said.

Helvea analyst Peter Thorne said UBS was better placed than Credit Suisse, with a net exposure to commercial real estate at the end of the second quarter of some 8.2 billion Swiss francs ($7.23 billion), compared with 15 billion for Credit Suisse

"If say, UBS and Credit Suisse both had to write off 20 percent of their current net exposure that would amount to 1.6 billion for UBS and 3 billion for Credit Suisse ... A problem, but not a terminal one," Thorne said.

Switzerland's banking regulator said on Monday the country's banks are well capitalised in the current financial crisis.

Without quoting sources, Swiss paper Sonntags Zeitung said UBS would have to write down another $5 billion on its risky investments in the second half.

The paper said it expected UBS to update the market before an October 2 shareholder meeting. UBS declined to comment.

A source close to UBS told Reuters the bank's exposure to Lehman was "small", but would not elaborate further.

U.S. HEADACHE

Separately, the Financial Times reported the bank was close to clinching a deal with U.S. authorities over allegedly helping wealthy U.S. citizens to avoid paying taxes by hiding assets in Switzerland.

UBS was trying to reach a deal with the U.S. Justice Department and regulators within the next two weeks, in time for the shareholder meeting, the Financial Times reported on Monday, citing well-placed UBS sources.

"UBS is treating these investigations with the utmost seriousness and continues to work diligently with both Swiss and U.S. government authorities in an effort to achieve a satisfactory resolution of these matters," a UBS spokesman said.

(Editing by Erica Billingham)