UBS takes another major hit

There may not be any profit for UBS this year Keystone

Switzerland's largest bank, UBS, says it's writing down a further $10 billion (SFr11.3 billion) as a result of the United States subprime mortgage crisis.

UBS said on Monday it expected a loss in the fourth quarter, adding it might show a loss for 2007 as a whole.

At the same time, UBS said it was raising SFr13 billion in new capital by selling stakes to investors in Singapore and the Middle East.

In a statement, Europe’s largest bank by assets said had revised its “assumptions and inputs” used to value US subprime mortgage related positions.

This was in response to “continued deterioration in the US subprime mortgage securities market… but mainly fuelled by worsening market expectations of future developments”.

UBS commented that it wanted to maintain a very strong capital based “under all circumstances”.

The announcement sent the share price down by almost three per cent at the opening of trading but by late morning it had bounced back to an increase of around three per cent. It finished the day up 1.4 per cent.

“The level of dilution is very significant,” commented analyst Omar Fall at ABN Amro in London shortly after hearing the UBS announcement.

New capital

UBS is strengthening its capital position by issuing new capital in transactions, by selling treasury shares, and by replacing its 2007 cash dividend with a stock dividend.

The bank has reached agreement with two strategic investors which will subscibe to the issue of SFr13 billion in new capital.

They are the Government of Singapore Investment Corporation (SFr11 billion) and an undisclosed strategic investor in the Middle East (SFr2 billion).

Commenting on the moves, UBS chairman Marcel Ospel said the losses in the US mortgage securities market were “substantial” but could have been absorbed by the bank’s earnings and capital base.

“Nevertheless, it is important to always maintain a notably strong capital position to support the continued growth of our wealth management position, which is the largest generator of value to UBS shareholders,” he said.

Ospel told German-language Swiss radio that his resignation had not been an issue at board meetings, and he wanted to be a part of the solution to the current problem.

He will, however, not receive a bonus this year. Last year, Ospel received a total salary of SFr26.6 million.

Transparency

CEO Marcel Rohner said the bank wanted as much transparency on the issue as possible.

“In the last several months, continued speculation about the ultimate value of our subprime holdings – which remains unknowable – has been distracting.

“In our judgement these writedowns will create maximum clarity on the issue and will have the effect of substantially eliminating speculation.”

Rohner added that losses in the US subprime market were “disappointing” but came at a time when most of UBS businesses were generating close to record levels of profit.

“I am confident that after these writedowns and with a strong balance sheet we are well positioned for growth and profitability.

Last month, UBS announced a management reorganisation after announcing a third-quarter loss of up to SFr800 million. It said it would write down SFr4 billion in losses in its fixed-income portfolio following the closure of its Dillon Read Capital Management subsidiary

The world’s largest wealth manager swept out senior managers and announced it would cut 1,500 jobs in its investment bank as it became one of the biggest casualties so far of turmoil in global credit markets.

swissinfo with agencies

New capital

The Singapore investment of SFr11 billion gives the island-state a nine per cent stake in UBS.

Both strategic investors are subscribing to a total issue of SFr13 billion of mandatory convertible notes.

The notes will pay a coupon of nine per cent until conversion into ordinary shares, which must take place on or before a date about two years after issuance.

UBS says the accords with strategic investors are subject to the approval of its shareholders at an extraordinary general meeting that will take place in mid-February.

GIC

The Government of Singapore Investment Corporation (GIC) is a global investment management company established in 1981 to manage Singapore’s foreign reserves.

It has a network of eight offices in key financial capitals around the world.

GIC has grown from managing a few billion dollars, to well above $100 billion today.

With a portfolio of this size, it is now amongst the world’s largest fund management companies.

swissinfo.ch