March 31 (Bloomberg) -- UBS AG, Switzerland's largest bank, declined in Swiss trading after Merrill Lynch & Co. analysts said it may have to raise capital because of subprime-related losses.

UBS closed 12 centimes, or 0.4 percent, lower at 28.86 in Zurich, after dropping as much as 4.8 percent. The shares have fallen 45 percent this year, cutting the Zurich-based bank's market value to 59.8 billion francs ($60.3 billion).

The bank should raise 15 billion francs to cushion potential writedowns of as much as $21 billion this year, Merrill analysts including Derek De Vries said in a note to investors today. UBS may announce $11 billion of first-quarter markdowns as early as this week, the analysts said.

``There is a strong chance they'll have to raise capital,'' said Edmund Shing, a Paris-based strategist at BNP Paribas Arbitrage SNC, a unit of France's biggest bank. UBS may have to turn to sovereign wealth funds from China or the Middle East ``because they're the only ones with enough liquidity at the moment to invest,'' he said.

The world's biggest banks are reeling after $208 billion in credit losses and writedowns linked to rising mortgage defaults in the U.S.

UBS posted the first annual loss last year since its creation in a 1998 merger after about $19 billion of writedowns. It may mark down securities by the same amount this year, based on the median estimate of five analysts surveyed by Bloomberg.

Biggest Loss

UBS reported a 12.5 billion-franc loss in the fourth quarter, the biggest ever by a bank, and Chief Executive Officer Marcel Rohner told reporters 2008 will be ``another difficult year.'' Further writedowns may lead to a loss of 8.2 billion francs in the quarter ending today, the Merrill analysts said. UBS spokesman Serge Steiner declined to comment on the report.

UBS already raised 13 billion francs this year from investors in Singapore and the Middle East by selling them bonds that will convert into shares.

``First-quarter results will bring another wave of writedowns and earnings disappointments'' at Switzerland's largest banks, the Merrill analysts said. ``A second capital raising at UBS is a real possibility.''

UBS currently has enough funds to withstand $16 billion of writedowns, said the analysts, who predict the bank will eliminate its dividend for 2008. Sonntag newspaper, citing people it didn't identify, said yesterday the bank may ask shareholders to approve a capital increase of as much as 16 billion francs.

More losses may increase pressure on Chairman Marcel Ospel, who is standing for re-election on April 23 at the annual shareholders meeting. Writedowns already cost the jobs of former CEO Peter Wuffli, finance chief Clive Standish and investment banking head Huw Jenkins.

`A Thousand Cuts'

The Merrill analysts, who have a ``neutral'' rating on UBS shares, said they would welcome a ``healthy $21 billion writedown announcement'' from the company. ``The market is sick of the `death by a thousand cuts' approach UBS has taken to marking down its legacy assets,'' the analysts said.

If it raises capital again, UBS may have to renegotiate the terms of the mandatory convertible bond it sold to Government of Singapore Investment Corp. and an unidentified Middle Eastern investor.

Under the terms of the bond, the maximum conversion price for the shares may be lowered if the bank sells more than 5 billion francs of new shares or equity-linked securities at lower prices or with a higher interest payment during one year following December's announcement of the agreement.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net;

Last Updated: March 31, 2008 12:42 EDT