UBS (UBS) lost $1.7 billion in the first quarter. Some of the reasons for the poor earnings report could apply to American banks and their results in future quarters. UBS management mentioned that its short-term prospects were still not good.
The Swiss bank said that its ability to trade derivatives is still being impeded by a lack of any market for these volatile securities. UBS also warned that it still faces substantial credit write-downs.
Since the core businesses at UBS are similar to those at American money center banks, it raises the issue of whether US banks can keep producing profits as the year goes by. Most big US financial firms still have toxic assets on their balance sheets. If the new public/private programs to buy those assets acquire them at prices below those that the banks use to account for them on their balance sheets, a new series of losses may be created.
American banks may have greater exposure to commercial real estate and consumer credit than UBS does, adding additional uncertainty about their future earnings.
The UBS earnings report is a clue that American financial firms have a long way to go before they are healthy.
Douglas A. McIntyre