Monday, 10 December 2007

UBS Drops Big Subprime Shoe

Back in October UBS reported a 3Q07 loss due to writedowns of $4.66 billion related to US subprime exposure and hinted at further possible losses in the fourth quarter. Today that has come to fruition with the announcement that they will write down their U.S. subprime mortgage investments by $10 billion, 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.

Europe's largest bank by assets plans to raise 13 billion francs ($11.5 billion) selling bonds convertible into shares to Government of Singapore Investment Corporation Pte. and an unidentified Middle Eastern investor, Zurich-based UBS said in a statement today.

UBS scrapped a forecast for a fourth-quarter profit and may post a full-year loss, the company said. The collapse of the U.S. subprime mortgage market has led to about $76 billion of losses and markdowns at securities firms and banks this year. UBS follows Citigroup Inc., the largest U.S. bank, in taking on strategic investors to bolster capital....

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....

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.

Including the $4.66 billion UBS wrote down in the 3Q07 you now have close to $15 billion in total writedowns related to sub-prime exposure from just one bank. Anyone willing to bet this will be the last of the writedowns for UBS? As stated back in October, this is not a one quarter event.