UBS is expecting quarterly loss to narrow on tax credit

UBS, Switzerland’s largest bank, said Friday that it expected its second-quarter results to be “at or slightly below break-even” because of a tax credit that would at least partly offset investment losses. The bank also said it wouldn’t need to ask for more capital when it reported the results next month.

Analysts had been expecting a second-quarter loss of as much as $4.9 billion from the bank that had been hammered by big losses related to the U.S. sub-prime lending crisis.

Shares in the crisis-hit bank jumped 8.2% to 22.74 Swiss francs ($22.17) on the announcement but soon fell back as analysts noted that without the unexpected tax credit of 3 billion Swiss francs ($2.9 billion) that UBS would record a significant loss. The shares closed down 2.6% at 20.48 francs ($20.01) on the Zurich exchange.

Worsening market conditions led to write-downs and losses in its investment business during the second quarter, UBS said. The write-downs were partially offset by profit in its global wealth and asset management businesses, it said.

Analysts had predicted that UBS would have a loss during the quarter of 1 billion francs to 5 billion francs ($980 million to $4.9 billion) as a result of continued exposure to sub-prime-related investments.

The bank has been struggling with heavy losses for the last year and was twice forced to seek outside capital injections. It said Friday that this would not be necessary when second-quarter results were formally announced Aug. 12.

Analysts at Zuercher Kantonalbank said the news would be welcomed in the short term, but noted that UBS still held sizable risky investments.

Banks around the world have been hurt by rising defaults on mortgage loans made to people in the U.S. with risky repayment histories. The lenders created securities backed by those loans and sold them to financial institutions and other investors. The value of the securities has fallen as mortgage defaults have risen.