Jeff Sica: UBS Has Significant Debt Exposure

October 14, 2011

Concerns that governments are less likely to come to the rescue of financial institutions prompted Fitch credit ratings agency to downgrade its outlook for several major banks.

Credit Suisse was placed on ratings watch, Morgan Stanley was placed on watch negative, UBS was downgraded to A from A-plus late Thursday as Fitch completed a review of the banks.

UBS AG had sustained a $2-billion loss from unauthorized trading at its investment bank. And Moody's also plans to review the Swiss bank's debt ratings, in light of what the ratings agency calls the ongoing weaknesses in the firm's risk management and controls.

Analyst Jeff Sica of Sica Wealth management says UBS has significant debt exposure.

"Their credit rating will continue to be under scrutiny because they have already established they have exposure," said Sica. "They have yet to come clean on the amount of exposure they have in the leverage components involved in that exposure. UBS being the biggest is a very strong concern."

Also downgraded were the Royal Bank of Scotland and Lloyds banking group. Last week, Moody's cut its ratings on the two U.K. banks for the same reason.

Sica says it is no coincidence several American investment banks were put on the watch list.

"The fact that there were a number of banks like Goldman Sachs and Morgan Stanley, Bank of America that are also being put on watch negative is concerning," he said. "They are U.S. banks. We have been continually speculating on the level of interdependence of U.S. banks on the foreign banks."

Meanwhile, JP Morgan Chase reported Thursday a four percent drop in income during the last quarter in its investment banking group. Next week several other big banks will be reporting, including Citigroup.