The word was out earlier today that UBS was going to take a stunning first quarter writedown of $18 billion (the total turned out to be $19 billion), far and away the largest credit crunch writedown to date.
But for my money, the attention-getting number is the quarter’s net loss in relation to equity: $12 billion, in comparison to a book value of SFr 35.6 billion as of year end (the dollar and Swiss Franc are more or less at parity these days). That’s 1/3 of the big bank’s equity. No wonder my trader buddies put UBS high on the list of Firms at Risk of Serious Trouble.
The bank will raise 15 billion francs ($15.1 billion) in fresh funds from shareholders to replenish capital, Zurich-based UBS said in an e-mailed statement today.
Now if you were a shareholder, would you be so keen to give more equity to a business that lost a third of its net worth in a mere three months? UBS got a capital injection of Sfr 19 billion last year, much of it from friendly sovereign wealth funds. I’m sure they’ll be delighted to stump up more cash.
Here’s another way to look at the 19B loss: it’s about 5% of Switzerland’s GDP.
Oh, have those 19 bn closed already? There was some shareholder resistance as far as I remember.
At Bear Stearns the 1bn from the Chinese never did close.
Reading the NYT on this, that $15B in new capital is stated as underwritten _by a consortium of major ibanks_, the direct competitors of USB, and moreover TO HAVE BEEN FULLY SUBSCRIBED _ALREADY_! Wow. This can’t be private capital flooding in: who in their right mind would sink that kind of dough into a firm with their kind of exposure? Why would USBs competitors help them soak up that kind of capital which they esperately need themselves; the fees must be sweet, sure, but the meat of it would be even better. To me, this has the fuzzy logic interface of a crypto-public bailout. I don’t know who’s putting in (or guaranteeing under the table) that kind of capital infusion, but for sure ‘the powers that be’ can desire no event less than they do the collapse of a bank the size of USB. . . . They’re being bailed, is my view.
If that inference is accurate, we have now reached the point where NO major bank will be allowed to fail, in any country, to thereby set off either asset price discovery, a systemic crisis, or both. From one sense, such an arrangement would be reassuring. From another, it strikes me as madness: assets _will_ come down. It would be better to manage the Great Unwind in as orderly a fashion as we can, and move forward rather than to attempt to prevent phony valuations from re-setting. But it looks like the latter course is the one that will be tried, unsurprisingly.
Oh, this is _great_ theater if I just didn’t have to sit in the burning building to watch the show!
Glancing at the NYT article, there is still something like $30B of exposure to subprime and alt-a securities on their books. If things continue to trend down in the housing market I’d look for another write down — perhaps substantial — next quarter.
The interesting thing to me is that the CDS market is being saved over and over again. No BKs, price discovery, or payouts. Even TMA managed to scrape by.
These comments raise an interesting question:
Who exactly is ponying up for these capital infusions on UBS, Lehman and Thornburg?
Funny how nobody ever seems to fail to raise capital, no matter how bad things get.