End in sight as UBS and Deutsche pile on sector woes

LONDON (Reuters) - UBS asked investors for more cash after taking another $19 billion writedown on Tuesday and Deutsche Bank predicted another hit, but Europe's bank shares rallied on hopes that the end of another torrid quarter could mark a low point.

UBS doubled its writedowns from its exposure to risky assets, making it the hardest hit bank from the U.S. subprime crisis and subsequent credit crunch. The Swiss bank also parted company with its chairman and said it will hive off ailing businesses into a separate unit.

News it was seeking to raise 15 billion francs ($15.04 billion) through a rights issue in a second emergency attempt to shore up its balance sheet was not a surprise, but more dramatic than expected by many.

Its shares surged 6 percent as some viewed the bold move as more positive than smaller, regular writedowns, which one analyst had said could result in "death by a thousand cuts".

"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," one trader said.

By 4:00 a.m. EDT the DJ Stoxx European banking sector index was up 2.3 percent at 352 points, its highest level for a month and 14 percent above its 3-1/2 year low of 309 points two weeks ago.

Britain's Barclays and Royal Bank of Scotland, Italy's Unicredit and France's Societe Generale all rose over 3 percent.

"The one saving grace in this is that banks are acting quickly to highlight their exposure," said Peter Dixon, economist at Commerzbank. "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 nineties was exacerbated by the failure of banks to admit the degree of their problems," Dixon said.

Deutsche Bank nudged 0.3 percent higher after unveiling a 2.5 billion euro ($3.94 billion) writedown. The hit appeared modest by comparison to UBS, and was not a surprise after it warned last week that the credit market turmoil could hit 2008 profits, but was still more than the entire writedown it made for 2007.

"Deutsche Bank took advantage of the timing, coming on the heels of UBS so as not to have to rattled the market a second time," said Heino Ruland, analyst at FrankfurtFinanz.

Credit Suisse is expected to follow its Swiss rival UBS in unveiling more losses now the first quarter has ended, but on a more modest scale. Its shares rose 4 percent.

But some analysts warned that the sector still needs to work through further pain.

European banks which need to rebuild their capital will also have to compete with U.S. rivals for funds.

Lehman Brothers said late on Monday it plans to raise $3 billion of capital.

The bank said the cash was not needed, but it wanted to quash concerns about its stability after speculation it did not have enough funding, heightened after smaller rival Bear Stearns was forced into a firesale.