May 6 (Bloomberg) -- UBS AG, the Swiss bank that has taken $38 billion of subprime mortgage-related writedowns, plans to sell $15 billion of assets to a fund managed by BlackRock Inc.

The sale of subprime and so-called Alt-A home loans probably will be completed by the end of June, Chief Executive Officer Marcel Rohner said today on a conference call with reporters.

``BlackRock is showing itself to be the go-to fixed-income manager for handling these distressed mortgage assets,'' said David Honold, a portfolio manager at Berwyn, Pennsylvania-based Turner Investments Inc., which manages $25 billion, including 629,486 BlackRock shares.

BlackRock, the New York-based manager of almost $1.4 trillion of assets, is seeking cash from investors to create a new entity that would hold and eventually sell the mortgage assets of Zurich-based UBS as the markets recover. BlackRock has held similar discussions with financial institutions around the world that are reeling from more than $300 billion in mortgage- related losses and writedowns.

``External investors are committing $3.75 billion,'' UBS Chief Financial Officer Marco Suter said in an interview today. ``If you bring in external investors into such a fund, it's probably good governance, good discipline to have an outside manager.''

Bad Bank

Creating a so-called bad bank owned by investors to hold and manage distressed assets is one way for banks to reduce losses so they can resume lending and revive revenue and profits amid the worst U.S. housing slump since the Great Depression.

BlackRock will target returns of more than 15 percent for the UBS fund, said two people with knowledge of the matter, who asked not to be identified because they aren't authorized to disclose the information. BlackRock spokeswoman Bobbie Collins declined to comment.

The arrangement with BlackRock, led by CEO Laurence Fink, will help the 43-year-old Rohner fulfill a pledge he made to employees to curb losses at the fixed-income unit.

``We have identified areas where we no longer want to operate and have transferred the respective risk positions to a separate unit,'' Rohner said in an April 23 speech at the company's annual meeting. ``This step gives us the option of allowing outside investors to take a share in our risk or even spinning off those operations.''

Moving Risk

Rohner has been under pressure since last year to show he can shore up confidence. Shareholders including Joerg de Vries- Hippen of Allianz Global Investors in Frankfurt have said it would take years for the bank to repair its reputation. Losses at UBS have led to the departures of Chairman Marcel Ospel, CEO Peter Wuffli, finance chief Clive Standish and investment banking head Huw Jenkins.

WestLB AG, the government-owned German bank hurt by subprime-related investments, hired Deutsche Bank AG and Pacific Investment Management Co. in April to run a special purpose vehicle with 23 billion euros ($36 billion) in asset-backed securities.

Rising defaults on U.S. home loans made to the riskiest borrowers caused declines in mortgage bonds starting in late 2005 and led to the collapse of subprime lenders including New Century Financial Corp. of Irvine, California. Concern of future losses caused credit markets to seize up last year, leaving highly leveraged banks and other investors with no margin of safety when loans came due and borrowing costs soared.

Job Cuts

UBS said today that it plans to cut about 5,500 jobs, or 7 percent of the workforce, after reporting a first-quarter loss of 11.5 billion Swiss francs ($10.9 billion). The company also will exit the municipal bond business.

The biggest Swiss bank first disclosed losses from the U.S. mortgage market last May when the company shut down a hedge fund after it lost 150 million francs in the first quarter of 2007.

Dwindling capital is forcing UBS to seek 15 billion francs from shareholders in a rights offer after it raised 13 billion francs this year from Government of Singapore Investment Corp. and an unidentified Middle Eastern investor.

Banks and securities firms have raised $231 billion of capital since July through the sale of shares or subordinated debt to investors including government investment funds in Abu Dhabi, China and Singapore.

Fed's Move

Bear Stearns Cos., once the largest underwriter of mortgage-backed securities, was forced to sell itself to New York-based JPMorgan Chase & Co., the third-biggest U.S. bank by assets, in March after a run by clients and lenders left the company on the verge of bankruptcy.

The Federal Reserve chose BlackRock to manage $30 billion of hard-to-sell assets at New York-based Bear Stearns, the fifth-biggest U.S. securities firm, and helped engineer the takeover by assuming the risk of loss on the assets. The Fed agreed to lend $29 billion to a limited liability company formed to purchase and then sell the unspecified assets.

BlackRock will oversee the liquidation of the collateral. The Fed loan is for a term of 10 years. Any sale proceeds that remain after repaying the loans and covering operating expenses for the limited liability company will go to the Fed.

With UBS, BlackRock would earn a fee for managing the assets and ultimately selling them as credit markets recover. BlackRock also would earn a percentage of profits after a certain return threshold is met, similar to a buyout fund, the people familiar said. BlackRock would invest its own capital in the fund and UBS would retain a minority interest to participate in any profits recovered, the people said.

Subprime Assets

``The first $3.75 billion of losses would be carried by new investors,'' Suter said today. ``It just shows that they see profit potential.''

UBS's holdings of subprime assets fell to about $15 billion at the end of March from $27.6 billion on Dec. 31, and Alt-A assets, which fall between prime and subprime, were cut to about $16 billion from $26.6 billion. Auction-rate securities positions, which are also subject to valuation uncertainties, rose to about $11 billion from $5.9 billion.

There are five main categories of subprime-affected assets: leveraged loans, commercial mortgages, commercial mortgage- backed securities, residential mortgages and residential mortgage-backed securities.

Pimco, Legg Mason

BlackRock, which avoided subprime-related losses in its own funds, is opening new funds to take advantage of the credit crunch. BlackRock is joining with hedge fund Highfields Capital Management LP to start a company that will raise $2 billion to buy delinquent home mortgages.

That company, Private National Mortgage Acceptance Co., or PennyMac, will be run by Stanford Kurland, former president of failed mortgage lender Countrywide Financial Corp. BlackRock also raised $5 billion for two other funds to buy mortgages, distressed debt and leveraged loans.

BlackRock has outmuscled competitors including Pacific Investment, or Pimco, and Legg Mason Inc. in the current crisis. The company collected $137.6 billion from investors in 2007, the most among publicly traded money managers.

BlackRock, which has $513 billion in fixed-income assets, ranks third among U.S. bond managers after Pimco of Newport Beach, California, and Legg Mason in Baltimore. BlackRock manages $1.36 trillion in total, including stocks, real estate and private equity. The firm is 49 percent-owned by New York- based Merrill Lynch & Co. and 34 percent by Pittsburgh-based PNC Financial Services Group Inc.

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

Last Updated: May 6, 2008 09:13 EDT