Oct. 30 (Bloomberg) -- UBS AG, Europe's largest bank by assets, reported its first quarterly loss in almost five years after the U.S. subprime mortgage contagion led to $4.4 billion in writedowns on fixed-income securities.

The third-quarter net loss was 830 million Swiss francs ($715 million), or 49 centimes a share, compared with net income of 2.2 billion francs, or 1.07 francs, a year earlier, Zurich- based UBS said today. UBS shares fell 1.3 percent in Zurich trading after the loss exceeded analysts' estimates.

The slumping U.S. housing market, which cost the world's biggest financial companies more than $30 billion, makes it unlikely UBS's investment bank will return to profit in the fourth quarter, Chief Executive Officer Marcel Rohner said today. Losses at the unit led to the ouster of investment banking head Huw Jenkins and finance chief Clive Standish this month, and outweighed record profit at the wealth management division.

``The fixed-income and credit business are still exposed to the subprime and credit markets in the U.S.,'' said Stefan Raetzer, who helps manage about $28 billion at Allianz Global Investors in Frankfurt. ``If a further weakening of the markets there occurs, UBS will have to make additional writedowns.''

UBS shares fell 80 centimes to 61.35 francs. The bank is the fifth-worst performer in the 63-member Bloomberg Europe Banks and Financial Services Index in the past 12 months, down 22 percent.

Deutsche, Credit Suisse

Deutsche Bank AG, Germany's largest bank, said on Oct. 3 that third-quarter profit rose at least 13 percent to more than 1.4 billion euros ($2 billion), helped by a tax gain. The Frankfurt-based company publishes detailed results tomorrow. Zurich-based Credit Suisse, which releases profit Nov. 1, said earlier this month that it may report an increase in earnings from continuing operations of as much as 6 percent.

The pretax loss at UBS's securities unit was 3.68 billion francs, compared with last year's profit of 1.08 billion francs. The main wealth-management division posted record pretax profit of 1.62 billion francs. Earnings from U.S. wealth management, including the former Paine Webber, advanced to 181 million francs from 43 million francs a year earlier. Profit at the Swiss consumer bank rose 4 percent to 591 million francs, and asset management climbed 30 percent to 369 million francs.

LBOs `Coming Back'

Rohner, who replaced Peter Wuffli four months ago, said the bank also took a writedown of $260 million on about $12.9 billion of loans to fund leveraged buyouts. The market for buyouts is ``gradually coming back,'' Rohner said.

UBS's total writedowns during the quarter of almost $4.7 billion are equivalent to about 11 percent of shareholders' equity at the end of June.

Equities trading revenue was little changed at 1.71 billion francs and fees from arranging mergers jumped to 1.1 billion francs from 797 million francs. Goldman Sachs Group Inc., the world's most profitable securities firm, doubled revenue from share trading.

Merrill Lynch & Co. posted the biggest loss in its 93-year history last week on $8.4 billion of writedowns, leading to the departure of CEO Stan O'Neal today. Citigroup Inc., the largest U.S. bank, had $6.5 billion in costs for fixed-income trading and underwriting losses and consumer loans gone bad.

Credit-default swaps on UBS rose 2 basis points to 41.5 basis points, according to Deutsche Bank. The contracts, used to bet on a company's ability to repay debt, gain when perceptions of credit quality worsen. A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.

More Writedowns

UBS said that while the fourth quarter started well, the bank can't assume it ``will continue as positively as it began, or that the current difficulties will be resolved in the short term.''

Debt market writedowns mean it's ``unlikely'' the investment-banking division ``will contribute positively to UBS results for the last three months of the year,'' Rohner said. The unit earned 1.36 billion francs in the final quarter of 2006.

Writedowns on subprime assets held by the investment bank will probably amount to between 1.5 billion francs and 2 billion francs in the fourth quarter, said Jeremy Sigee, an analyst at Citigroup in London, in a note to investors today.

Subprime Risk

Rohner, 43, UBS's fourth top manager in the past nine years, is cutting 1,500 jobs and reducing assets at the investment bank by 25 percent to 30 percent to cut risk.

UBS said today the bank had $16.8 billion invested directly in residential mortgage-backed securities at the end of the quarter. It also had $1.8 billion of collateralized debt obligations, bonds created by repackaging other debt securities, as well as $20.2 billion of so-called super senior securities, or AAA-rated structured debt that gets paid back ahead of other similarly rated bonds in case of a default.

``It is going to be tougher, and it's going to be tougher for quite a while,'' said Jane Coffey, head of equities at Royal London Asset Management, which oversees about $14 billion. ``We're not really out of the credit crunch time yet and a lot of these securities are very difficult to value.''

Wuffli closed the Dillon Read Capital Management LLP hedge- fund unit closed earlier this year at a cost of $300 million after traders misjudged the housing slump.

By reducing the size of its fixed-income business, Rohner increases UBS's reliance on the fees it makes from managing assets for clients with at least $1 million to invest. The main wealth management operation accounted for about 40 percent of pretax profit in 2006. UBS last week agreed to buy Commerzbank AG's French money management unit for 435 million euros to double funds it oversees in Europe's third-largest economy.

To contact the reporter of this story: Jacob Greber in Zurich at jgreber@bloomberg.net

Last Updated: October 30, 2007 13:04 EDT