UBS is likely to create a ring-fenced operation to assume and manage part of its bad debts when it reports its first quarter results in May, according to Christopher Wheeler, senior research analyst at Bear Stearns.

In a newly-published research note, Wheeler said: "We would expect the entity to at first be capitalised and funded by UBS and continue to be consolidated...In time UBS will be able to fund the distressed assets in the market and possibly spin out the "bad bank" to shareholders, allowing them to fully benefit from recoveries."