Jan. 18 (Bloomberg) -- UBS AG, Europe's biggest bank, will shut a U.S. group that makes bets on fixed-income investments as it scales back risk-taking after writing down the value of subprime mortgage investments by $14.7 billion last year.

UBS will close the principal-finance unit and cut the number of employees who underwrite, package and trade mortgage- related securities by 50 percent from the peak in August, Chief Executive Officer Marcel Rohner wrote in a note to employees. The company will reduce the capital committed to its real-estate unit by two-thirds and appoint a new risk manager.

The Zurich-based bank, which ousted Rohner's predecessor Peter Wuffli in July, said last week that 2008 will be another ``difficult'' year for the financial industry. UBS wrote down the value of debt securities and leveraged loans as U.S. subprime-mortgage turmoil caused credit markets to slump.

``We will continue to examine and refine our strategy, with the objective of improving efficiency and returning the area to profitability,'' Rohner wrote of the fixed-income unit. The company's ``reshaping of our proprietary credit operation is in line with the investment bank's strategy to reduce risk concentration and balance sheet utilization,'' he wrote.

UBS fell 5.1 percent, the most in 18 months, to 43.20 francs in Zurich trading. The shares have fallen 43 percent in the past 12 months, underperforming the 34 percent decline of Credit Suisse Group, the second-biggest Swiss bank.

Merrill, Citigroup Losses

Rohner's memo, dated Jan. 16, was reported earlier today by the Financial Times and confirmed by London-based spokesman Dominik von Arx. The company didn't say how many people in the investment-banking division, which numbered 22,800 at the end of September, will be affected. It said Dec. 11 that it had made 1,400 of the 1,500 job cuts announced in October.

Last year's losses also cost the jobs of finance chief Clive Standish and investment-banking head Huw Jenkins. The company said last month it plans to raise 13 billion francs from Government of Singapore Investment Corp. and an unidentified Middle Eastern investor by selling bonds convertible into shares.

Merrill Lynch & Co. CEO John Thain, who replaced Stan O'Neal last month, said on a conference call yesterday that the New York-based firm should stop taking risks that have the potential to wipe out profit. The biggest U.S. brokerage reported a record loss after $16.7 billion of writedowns. Citigroup Inc. also reported its biggest-ever loss this week.

UBS will simplify its credit operations with a single team covering investment grade, loans sales and trading, cross-over and high yield businesses; scale back Canadian and European power and gas trading; and combine equity and debt underwriting, Rohner also wrote. The company already closed down its global credit strategies proprietary desks in Asia and Europe.

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net

Last Updated: January 18, 2008 11:51 EST