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Fitch Sees UBS Markdowns

The rating agency sees pain ahead for Wall Street firms.

Fitch downgraded the outlook for investment bank

UBS

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, citing ongoing volatility as financial institutions sort through billions of assets that may need to be marked down.

Fitch changed UBS' issuer default rating from stable to negative. "The change in outlook reflects Fitch's opinion that, in common with other banks with substantial investment banking businesses, ongoing market volatility throughout

the third quarter will adversely affect earnings from UBS's investment banks," the rating agency stated. It said performance at the firm's global wealth management business may not be sufficient to offset troubles in other areas.

The news helped send shares of UBS down around 1.3% in late-morning trading.

Banks and brokers including UBS,

Morgan Stanley

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,

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Goldman Sachs

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,

Bear Stearns

(BSC)

and

Lehman Brothers

(LEH)

are facing severe troubles in credit stemming from this year's collapse of the subprime mortgage market. Loose mortgage underwriting terms fed an easing of loan standards in the financing of big leveraged buyouts and esoteric structured debt known as collateralized debt obligations.

Fitch predicts that weakness in UBS's performance will emerge in its fixed-income business. A number of high-profile executives have left UBS after the firm was forced to shut down internal hedge fund Dillon Read Capital Management due to big losses in subprime bets.

Wall Street is expecting that beginning tomorrow, Lehman will show what kind of shape bank balance sheets are in. Lehman is one of the largest underwriters of CDO and other structured debt securities.

Other financial firms, including Goldman and Bear Stearns, which also are expected to report earnings later in the week, were off around 2% in late-morning trading action.