Feb. 29 (Bloomberg) -- Financial firms will likely see their losses reach at least $600 billion as the crisis triggered by the collapse of subprime mortgages batters banks, brokers and insurers, UBS AG analysts said.

Banks and brokers stand to lose $350 billion, according to estimates from the global banking unit of UBS, the world's largest wealth manager. Financial institutions have so far disclosed more than $181 billion of writedowns and credit losses.

``We have to recognize the risk that the economy will suffer more damage than what consensus suggests,'' Geraud Charpin, head of European credit strategy at UBS in London, wrote in a report today. ``All the investment schemes that have been built on the basis of a strong and resilient economic backdrop have to be unwound/scaled down.''

American International Group Inc., the world's largest insurer, reported the biggest quarterly loss in its 89-year history yesterday after an $11.1 billion writedown on derivatives linked in part to subprime mortgages. London-based Peloton Partners LLP said yesterday it's being forced to liquidate a $1.8 billion hedge fund managing asset-backed debt because of tighter lending restrictions on Wall Street.

A report presented to a conference attended by Federal Reserve officials today had a different estimate of total losses by banks. Morgan Stanley economist David Greenlaw and Goldman Sachs Group Inc. chief U.S. economist Jan Hatzius said they expect ``mortgage credit losses'' to reach $400 billion. They urged banks to raise capital.

`Fallen Angel'

``The collapse of Peloton's flagship fund yesterday is a reminder to all investors that yesterday's rising star can be tomorrow's fallen angel,'' Charpin wrote. ``Leveraged risk positions are a cancer in this market and the sooner it is treated the better.''

Zurich-based UBS has written down $19 billion of securities, including leveraged loans. Chairman Marcel Ospel won shareholder support yesterday for a plan to replenish capital by selling 13 billion Swiss francs ($12 billion) of bonds that will convert into shares to Government of Singapore Investment Corp. and an unidentified Middle Eastern investor.

UBS's banking analysts cut their profit estimates for U.S. banks and brokers today, joining at least six other analysts who have done so with the expectation of further subprime writedowns. Punk Ziegel & Co.'s Richard Bove and Deutsche Bank AG's Mike Mayo also reduced their earnings estimates for U.S. banks today.

First-Quarter Writedowns

Mayo expects Lehman Brothers Holdings Inc., Morgan Stanley and Bear Stearns Cos. to write down a total of about $5 billion in the first quarter. UBS analysts predict $11 billion of writedowns at Lehman, Goldman Sachs Group Inc., Merrill Lynch & Co., Bear Stearns and Citigroup Inc.

More writedowns are coming as a result of the 15 percent decline this year in securities tied to Alt-A mortgages, according to Fox-Pitt Kelton Cochran Caronia Waller analyst David Trone. Alt-A loans are typically made to homeowners with credit scores between subprime and prime and with weaker documentation of their income levels. Trone expects Lehman, Merrill Lynch, Morgan Stanley and Bear Stearns to reduce their Alt-A portfolio values by $6 billion.

Federal Reserve Chairman Ben S. Bernanke said yesterday there will probably be some failures among smaller banks and unemployment will rise, fueling investor concern that a recession can't be avoided.

Broker and bank shares have fallen in the last two days on concern about additional writedowns. The Amex Securities Broker/Dealer Index has dropped 8 percent in the past two days and is down 12 percent for the year.

`Worrisome' Data

``The downward pace has actually accelerated in the past couple of months with both U.S. and EU data becoming more worrisome,'' Charpin said in the report.

More ``shocks'' to credit markets may increase the cost of protecting corporate bonds from default by as much as 50 percent, the report said. The benchmark iTraxx Europe index of credit- default swaps, which was at 128 basis points today, could soar to as high as 200 basis points, Charpin wrote. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

``That would be very short-lived, a couple of weeks maybe, and entirely driven by forced/panic liquidations,'' Charpin said.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline indicates improvement in the perception of credit quality; an increase, the opposite.

Following is a table of the new per-share estimates by the three analysts who cut their profit expectations today:

Firm             UBS          Deutsche       Punk Ziegel
                 estimate     estimate       estimate

Bear Stearns     $1.25        $1.48          $1.54

Citigroup        $0.20        n/a            $0.26

Goldman Sachs    $2.50        n/a            $2.30

JPMorgan         $0.73        n/a            $0.75

Lehman           $1.00        $1.02          $0.93

Merrill          $0.59        n/a            $0.46

Morgan Stanley   $1.05        $1.07          $0.75

To contact the reporters on this story: Abigail Moses in London at Amoses5@bloomberg.net; Yalman Onaran in New York at yonaran@bloomberg.net.

Last Updated: February 29, 2008 16:23 EST