ZURICH (Reuters) - Shares in Swiss-based bank UBS AG
By Andrew Hurst, European Banking Correspondent
ZURICH (Reuters) - Shares in Swiss-based bank UBS AG
jumped on hopes that profitability will improve after its third-quarter loss and that Asian, Gulf and Russian investors are targeting European banks hit by the subprime crisis.
"UBS shares have been massively oversold," said one Zurich trader. "Another thing is the speculation over stake taking from the Chinese, Arabs or Russians."
!ADVERTISEMENT!UBS, whose shares have fallen 17 percent so far this month, were up 5.1 percent at 53.74 francs by 1407 GMT on Wednesday, making it Europe's leading blue-chip gainer. The DJ Stoxx index of European banks was up 2.6 percent at that time.
Analysts at bank Credit Suisse raised their investor recommendation for UBS to "buy," saying that recent falls in UBS's share price made the group good value and that the bank's exposure to more subprime risk was likely to be limited.
Many investors also seem increasingly inclined to lend credence to UBS's repeated guidance to analysts that it does not anticipate massive writedowns on subprime-related exposures in the fourth quarter.
"We are also less than convinced that big further writedowns will actually be necessary. Unlike some of its peers, which have taken much bigger writedowns on CDO exposure, UBS has no material exposure to conduits," Credit Suisse said in a note.
UBS last month announced its first group quarterly loss in five years and warned that its investment bank would continue to lose money in the final three months of the year although the bank expected to make money at group level.
SCEPTICISM
Some analysts remained skeptical that UBS's troubles -- triggered by an ill-fated and now defunct hedge fund venture, Dillon Read Capital Management -- have run their course and fear that there may be more unpleasant surprises to come.
"I've had a few calls from investors asking whether they should be buying. My answer is we don't know the scope of fourth quarter losses and we don't know how much spillover there will be into 2008," said Simon Maughan, an analyst at MF Global Securities.
"I would be loath to go bottom-fishing because we don't see anything in the last week to tell us this is the bottom."
Maughan said central banks were likely to inject liquidity into the global financial system as the end of the year approached, helping to trigger a rebound in financial stocks.
Credit Suisse said in its note the bank's shares had fallen so steeply in recent weeks that they were now approaching bargain-basement levels. "This suggests to us there is a potential value opportunity here," it said.
"There is currently 35 percent upside potential to current levels, with potential for more if and when the investment bank gets back on its feet," Credit Suisse added.
Rumors have swirled in Zurich this week that investors from the Middle East or China could be interested in buying a stake in UBS.
(Editing by Louise Ireland; Additional reporting by Thomas Atkins and Rupert Pretterklieber)
