UBS’s shares tumbled for a second day in a row, ending down 17 per cent after the bank said the cost of closing its exposure to Lehman Brothers would be up to $300 million (£167.9 million).

The Swiss banking giant said it had decided to put out a statement on its exposure to Lehman after research by Bernstein suggested UBS would have to pay a much bigger price.

“UBS confirms that its direct and counterparty exposures to Lehman Brothers, net of hedges, are now substantially closed out. UBS does not expect the total cost of closing out its exposures to Lehman Brothers to exceed $300 million,” the bank said in a statement.

Marcel Rohner, UBS chief executive, said in a TV interview that the bank was prepared to weather the current market turmoil. “We are glad that we have taken the painful measures early -the capital increase, the strong risk reduction.

“So we are now prepared to deal with this very difficult situation,” he added.

UBS shares fell to their lowest level since listing in their current form in 1998 as soaring interbank loan rates exacerbated investors’ worries about the sector’s prospects after the collapse of U.S. investment bank Lehman Brothers.

Today’s fall comes on top of a 15 percent drop on Monday that had reversed a steady recovery from its previous all-time low, hit in July.

UBS’s shares closed down 17.21 per cent at SF16.64 (£8.30), off an intraday low of 15.18 Swiss francs after it recouped some losses following the release of its statement.

But it was still the second-worst performing European bank share today. Only HBOS, Britain’s biggest home lender, lost more, falling 21.7 per cent.

News of a slump in profit at U.S. investment bank Goldman Sachs also added to the pressure on the overall banking sector.

Shares in UBS’s Swiss rival, Credit Suisse, closed down 4.69 per cent at SF47.18 Swiss francs.

UBS has written down $42 billion of assets as a result of the subprime crisis, more than any other bank in Europe so far. But it has rebuilt its capital base after tapping investors twice this year.

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