Switzerland's banking regulator sent another shudder through the sector yesterday by hinting that further credit-related writedowns were imminent.

Swiss banking is reeling from the huge provisions taken by UBS to prop up reserves against investment losses.

Daniel Zuberbuehler, director of the Swiss Federal Banking Commission, told a newspaper there that financial risks were spreading from mortgages to other forms of borrowing such as credit cards and retail and commercial loans. Banks have so far been badly affected by the falling value of their investments in American sub-prime mortgages.

Mr Zuberbuehler said: “People here are talking about the next hot spots, meaning areas that will come under pressure next ... It cannot be ruled out that there could be more to come.”

UBS's woes were compounded yesterday by a report from Morgan Stanley, whose analysts cut the bank's rating from equal-weight to underweight amid concerns about the strength of the bank's balance sheet. The analysts said that they still saw “headline risk from sub-prime and other asset concerns”.

Traders blamed the regulator for fuelling anxiety about the financial sector, as Julius Baer, the Swiss asset manager, also saw its share price drop.

On Wednesday, UBS increased its estimate of fourth-quarter losses from sub-prime related investments. The bank said that its quarterly losses would hit $14billion (£7 billion), $4 billion more than the bank estimated in an update to investors last month. UBS's total sub-prime losses of $18.4billion are the highest of the European banks so far.

Morgan Stanley yesterday predicted that the Swiss bank could announce a further $4.1 billion of writedowns.

UBS said that it would make a loss of SwFr4.4 billion (£2 billion) for 2007 as a result of its investments in risky American mortgages. It is due to report its full-year results on February 14. In the third quarter of 2007, Credit Suisse reported a $2 billion sub-prime-related writedown.

After early heavy falls sparked by the regulator's remarks, UBS shares closed up almost 4 per cent at SwFr44.32, while Credit Suisse closed down 1 per cent at SwFr60.80.

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