Oct. 30 (Bloomberg) -- UBS AG, Europe's largest bank by assets, reported its first quarterly loss in almost five years after declines in the U.S. subprime mortgage market led to $4.4 billion in losses and writedowns on fixed-income securities.

The third-quarter net loss was 830 million Swiss francs ($712 million), or 49 centimes a share, compared with net income of 2.2 billion francs, or 1.07 francs, a year earlier, Zurich- based UBS said in a statement today. The loss exceeded the 683 million-franc estimate of nine analysts surveyed by Bloomberg.

The slumping U.S. housing market, which cost the world's biggest securities firms and banks more than $30 billion in bad loans and trading losses in the quarter, may lead to further writedowns, UBS reiterated today. Chief Executive Officer Marcel Rohner, who replaced Peter Wuffli four months ago, said losses at the investment bank outweighed record earnings at UBS's wealth management operation, the world's biggest.

"They didn't have very good control over what was happening at their investment bank," said Mark Glazener, a fund manager at Rotterdam-based Robeco, which holds about $65 million of UBS shares. "It's still not very clear what is going on."

UBS shares fell 55 centimes, or 0.9 percent, to 61.6 francs at 9:19 a.m. in Zurich. The bank is the sixth-worst performer in the 63-member Bloomberg Europe Banks and Financial Services Index in the past 12 months, down 21 percent. Frankfurt-based Deutsche Bank (NYSE:DB) AG lost 11 percent and Zurich-based rival Credit Suisse Group (NYSE:CS) gained about 1 percent.

Deutsche, Credit Suisse

Deutsche Bank, Germany's largest bank, said on Oct. 3 that third-quarter profit rose at least 13 percent to more than 1.4 billion euros ($2 billion), helped by a tax gain. The Frankfurt- based company publishes detailed earnings tomorrow. Credit Suisse, which releases results Nov. 1, said earlier this month that it may report an increase in earnings from continuing operations of as much as 6 percent.

The pretax loss at UBS's securities unit was 3.68 billion francs, versus last year's profit of 1.08 billion francs. Losses and writedowns on residential mortgage-backed bonds and collateralized debt obligations, bonds created by repackaging other debt securities, amounted to $4.4 billion, more than the $3.7 billion the bank estimated on Oct. 1.

Equities trading revenue was little changed at 1.71 billion francs and fees from arranging mergers jumped to 1.1 billion francs from 797 million francs a year earlier.

At the main wealth-management division, profit rose by almost a third to a record 1.62 billion francs. Earnings from U.S. wealth management, including the former Paine Webber, advanced to 181 million francs from 43 million francs. Profit at the Swiss consumer bank rose 4 percent to 591 million francs, and asset management climbed 30 percent to 369 million francs.

`Drag' on Earnings

UBS and Merrill Lynch (OOTC:MERIZ) & Co. are the only two Wall Street firms to report losses in the third quarter. New York-based Merrill last week posted the biggest loss in its 93-year history after taking $8.4 billion of writedowns. Citigroup Inc. (NYSE:C) , the largest U.S. bank (NYSE:USB) , had $6.5 billion in costs for fixed-income trading and underwriting losses and consumer loans gone bad.

UBS said that while the fourth quarter "started with good results from all business," the bank can't assume it "will continue as positively as it began, or that the current difficulties will be resolved in the short term."

Debt market writedowns, which cost Chief Financial Officer Clive Standish and investment-banking head Huw Jenkins their jobs this month, will probably lead to another unprofitable quarter at the securities unit in the current three-month period, Rohner said today. The division earned 1.36 billion francs in the final three months of 2006.

Subprime Risk

Today's results "are unlikely to put an end to questions about losses from U.S. subprime," said Derek De Vries, a London- based analyst at Merrill Lynch in a note to investors. He rates the shares as "buy."

Dillon Read, which Wuffli closed earlier this year at a cost of $300 million after traders misjudged the housing slump, lost 380 million francs in the first six months of this year. In 2006, the division accounted for $1.2 billion, or 17 percent, of UBS's total fixed-income revenue.

Rohner, 43, UBS's fourth top manager in the past nine years, is cutting 1,500 jobs and reducing assets at the investment bank by 25 percent to 30 percent to cut risk.

UBS said today that the bank had $16.8 billion invested directly in residential mortgage-backed securities at the end of the quarter. It also had $1.8 billion of CDOs, as well as $20.2 billion of so-called super senior securities, or AAA-rated structured debt that gets paid back ahead of other similarly rated securities in the case of a default.

UBS also said markdowns on leveraged finance positions were 480 million francs, gross of fees.

`Tougher'

"It is going to be tougher, and it's going to be tougher for quite a while," said Jane Coffey, head of equities at Royal London Asset Management, which manages about $14 billion. "We're not really out of the credit crunch time yet and a lot of these securities are very difficult to value."

By reducing the size of its fixed-income business, Rohner increases UBS's reliance on the fees it makes from managing assets for clients with at least $1 million to invest. The main wealth management operation accounted for about 40 percent of pretax profit in 2006.

UBS last week agreed to buy Commerzbank AG's French money management unit for 435 million euros to double funds it oversees in Europe's third-largest economy. Since the start of 2006, the bank has spent more than $4 billion on takeovers, including this year's purchase of Standard Chartered Plc's Indian mutual fund unit, and a majority in Hana Financial Group Inc.'s (OOTC:HNFGF) funds unit in Korea.

With reporting by Elena Logutenkova in Frankfurt, Naga Munchetty in London and David Clarke in Edinburgh.