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UBS: $10 Billion in Writedowns, Selling Stake to Foreign Investors

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When it announced its third quarter writedowns of nearly $4.7 billion, UBS had predicted a profit for the fourth quarter. The planned $10 billion writedoff of subprime-related debt announced today not only will lead to a fourth quarter loss, but may lead the Swiss bank to show losses for the full year. The bank plans to shore up its balance sheet by selling $11.5 billion (SFr 13 billion) of convertible bonds to the Government of Singapore Investment Corporation and an unnamed Middle Eastern investor, along with some other measures to boost equity.

Chairman Marcel Ospel said he believed these will be the last writedowns: “I find it very difficult to imagine even worse consequences.”

From Bloomberg:

UBS AG will write down U.S. subprime mortgage investments by $10 billion, the biggest such loss by any European bank, and replenish capital by selling stakes to investors in Singapore and the Middle East…

UBS scrapped a forecast for a fourth-quarter profit and may post a full-year loss, the company said….

“UBS was quite clever this time to couple some extremely bad news with some good news,” said Dieter Winet, who helps manage about $50 billion including UBS shares at Swisscanto Asset Management. “It’s positive that capital is placed in firm hands. This will help restore trust in private banking and asset management and help UBS write new business.”…

Singapore’s GIC, which oversees the island nation’s foreign reserves, will invest 11 billion francs in UBS for a 9 percent stake. The Middle East investor will put in 2 billion francs….

“Because there’s a lot of liquidity in those countries and those sovereign wealth funds, they’ll be looking for investment opportunities,” said Masafumi Oshiden, a Tokyo-based fund manager at BlackRock Japan Co., whose parent company holds $1.1 trillion in assets. “The valuations have come down a lot.”

UBS also plans to sell 36.4 million treasury shares that it previously intended to cancel, raising about 2 billion francs, and proposed replacing the 2007 cash dividend with stock, boosting capital by 4.4 billion francs. The convertible bond sale and dividend replacement must be approved by an extraordinary shareholders meeting in mid-February, the bank said.

UBS said it plans to raise a total of 19.4 billion francs through all the measures, which will improve its so-called Tier 1 ratio to more than 12 percent from 10.6 percent on Sept. 30…..

Credit-default swaps tied to the Zurich-based bank’s debt rose 1 basis point to 57 basis points, according to Deutsche Bank AG. The cost of credit-default swaps, used to speculate on the ability of companies to pay their debts, rise as perceptions of credit quality worsen.

UBS said on Oct. 30 that it had $16.8 billion invested directly in residential mortgage-backed securities at the end of the quarter. It also had $1.8 billion of collateralized debt obligations, bonds created by repackaging other debt securities, as well as $20.2 billion of so-called super senior securities, or AAA-rated structured debt that gets paid back ahead of other similarly rated bonds in case of a default.

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2 comments

  1. doc holiday

    Re: UBS AG will write down U.S. subprime mortgage investments by $10 billion, the biggest such loss by any European bank, and replenish capital by selling stakes to investors in Singapore and the Middle East…

    Re: America is now for sale and will be controlled by outside forces, as a result of treason!

    Sovereign wealth funds will have unprecidented access to Americas future, do you care???

    Re:
    And right now Persian Gulf countries are putting their cash to work through newly minted sovereign wealth funds (SWFs), which operate much like state owned hedge funds or private equity groups.

    In the past six months alone, Middle Eastern SWFs have doled out serious cash for stakes in major international corporations. Just take a look:

    Nov. 27: Abu Dhabi pours $7.5 billion into ailing Citigroup Inc. (C), which recently lost its status as largest bank by market capitalization to Bank of America Corp. (BAC).
    Nov. 26: Dubai International Capital, a state-owned holding company, acquired an undisclosed stake in Japan’s electronics and media juggernaut Sony Corp. (SNE).
    Nov. 16: Abu Dhabi invested $622 million (an 8.1% stake) in California-based microchip-maker Advanced Micro Devices Inc. (AMD).
    Oct. 20: Dubai International Capital agreed to invest $1.26 billion in the initial public offering of hedge fund Och-Ziff Capital Management Group LLC (OZM).
    Aug. 22: Dubai World, another investment arm of the state, plunked down $5.1 billion for a 9.5% stake in MGM Mirage (MGM).
    Aug. 14: Istithmar, part of Dubai World, was cleared to buy Barneys New York Inc. for $942.3 million from Jones Apparel Group Inc. (JNY).
    May 21: General Electric (GE) sold its plastics division to Saudi Basic Industries Corp. – the country’s largest public company, though 70% owned by the government – for $11.6 billion.

    >>Sell us down the rat hole for bad bets and thanks for using pension funds!

  2. docs

    UBS also declined to comment on a separate media report that the bank was holding a board meeting on Sunday ahead of an investor day in London on Tuesday.
    The Swiss bank reported big write-downs on subprime-related exposures and a pretax loss of 726 million francs in the third quarter.

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