UBS might be in murky waters because of lingering exposure to American subprime mortgage backed securities, but analysts think it's now a prize bargain.

Shares in the Swiss bank, which on Momday announced it would post its first loss in almost a decade in the third quarter, rose 3.2%, to 66.55 Swiss francs ($56.63), in Zurich after analysts at JPMorgan Chase upgraded it to "neutral" from "underweight."

With new management holding the reins -- the bank's chief executive was replaced by Marcel Rohner in July , who also took over the investment-banking division yesterday from Huw Jenkins -- UBS had a "clean sheet" to work with.

"We have long argued that UBS has been over-investing in its investment-banking business," wrote JPMorgan's Kian Abouhossein in a note to clients. That drastically changed on Monday, when UBS announced it was culling 1,500 jobs from its investment-banking division, or 6.7% of the 22,300 staff in the unit.

Abouhossein said there was now further potential for Rohner to cut costs and make that division more profitable. He said UBS will have probably already saved about 764 million Swiss francs ($650 million), or 5.1% of the company's pretax profits, with its latest raft of job cuts.

"We'd like to give management the benefit of the doubt, however questions remain," he said, adding that the bank still had exposure to subprime mortgage assets and it remains to be seen who will be appointed to permanently head the investment-banking division.

Abouhossein's concern about UBS's earnings were reflected in his estimate downgrade and reduced price target, which he made along with his share upgrade. The analyst cut his earnings estimate for UBS by 24.9%, saying he expected the bank to post a $648 million third-quarter loss. The Swiss bank said Monday that it could lose up to $650 million in the third quarter. Abouhossein also cut his price target to 72 Swiss francs ($61), from 74 Swiss francs ($63). That still gives it appreciation potential of 8.2%.

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By Parmy Olson

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