Both Bloomberg and MarketWatch feature stories on the possibility of further mortgage-debt triggered writeoffs at UBS. Readers may recall that the markets took cheer when UBS announced its third quarter chargeoffs, believing the bank and its peers were putting their troubles behind them. However, the bank now has lower
MarketWatch cited a Swiss newspaper that said an unscheduled UBS board meeting was taking place over the weekend, and noted that the bank had written off SFr4.2 billion in subprime assets, but still had Sfr 39 billion remaining.
Analysts now believe that UBS has considerably more losses to dispose of, but will do so gradually, rather than all in the fourth quarter. (I’m surprised they have that much latitude, but then again, I’m not certifying their books)>
Bloomberg gives more detail from the analysts:
UBS AG, Europe’s biggest bank by assets, may have to take further writedowns on fixed-income securities after the U.S. subprime mortgage crisis rattled debt markets, ABN Amro Holding NV analyst Kinner Lakhani said.
“The industry has been moving to more aggressive markdown rates,” said Lakhani, who recommends investors hold the stock. “UBS has $20 billion of collateralized debt obligation exposure and to date has taken markdowns well below industry benchmarks.”
UBS’s board is holding extraordinary meetings this weekend before the bank’s investor day in London on Dec. 11, and the bank may cut its profit outlook as soon as tomorrow, SonntagsZeitung reported today, without citing anyone. UBS spokeswoman Tatjana Domke declined to comment on the article when contacted by Bloomberg.
The bank, which reported its first loss in almost five years in the third quarter after the U.S. subprime mortgage contagion led to about $4.66 billion in writedowns on fixed- income securities and leveraged loans, has said it expect to return to profit in the fourth quarter. Securities firms and banks announced about $66 billion of losses and markdowns linked to the collapse of the U.S. subprime market this year.
“UBS has to make a decision whether it’s in line with previous guidance or not,” said Kian Abouhossein, a London- based analyst at JPMorgan Chase & Co. with an “overweight” rating on UBS. “Equity markets would like the full clean up.”
Abouhossein last month estimated that UBS may write down 3 billion Swiss francs ($2.66 billion) in the fourth quarter and 12.8 billion francs in 2008. A significantly bigger write-off this quarter could result in rating companies cutting their view on the bank’s debt, a scenario UBS might want to avoid because it would create negative publicity and damage its private banking business, he said.
“I’d be surprised if they write down everything in one go,” he said. “Based on UBS’s expected loss model, writedowns over several quarters are more likely.”
The bank may write down about 2.6 billion francs in the fourth quarter, according to the average estimate of five analysts who published their forecasts over the past month. Taking a larger writedown would mean that UBS may have to sell new shares and forego a dividend for this year, analysts including Bear Stearns Cos.’ Christopher Wheeler have said.
To bring its writedowns into line with those of New York- based Merrill Lynch & Co., the third-largest securities firm, UBS would have to take about 8.5 billion francs in pretax writedowns, Lakhani said.
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.