Tax credit to save UBS from hefty loss

By Sven Egenter

ZURICH (Reuters) - Battered Swiss bank UBS said on Friday it should be saved from another hefty loss in the second quarter by a large tax credit, giving a much-needed though short-lived boost to its share price.

UBS, which has written $37 billion off its assets as a result of the credit crisis, said it expected to break even or make a small loss in the second quarter, helped by the 3 billion Swiss franc ($2.96 billion) tax credit.

"This comes as a surprise as the market expected a further multibillion loss in the region between 2 billion to 7 billion Swiss francs," said Landsbanki Kepler analyst Dirk Becker.

But its investment bank continued to lose money, and further market deterioration led to writedowns and losses on previously disclosed risk positions, in particular in its monoline insurance exposures, UBS said in a statement.

UBS shares, which this week hit 10-year lows, soared on the earnings update but a downgrade by rating agency Moody's wiped out those gains, dragging the shares down nearly 2 percent to 20.62 francs by 1300 GMT (9 a.m. EDT).

The downgrades on UBS's financial strength, senior debt and deposit ratings reflected the challenges management face to return the bank to a position of stability following the losses in its investment banking, Moody's said.

"The bank has initiated many changes to senior management, risk management, and ... corporate governance, but it is not yet clear whether these changes will be effective considering the complexity of the task", said Moody's Senior Credit Officer Elisabeth Rudman.

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