UBS takes new $10bn subprime hit by Finance News Bulletin

Published: 12/12/07

All times are London time Search information in the FTcom siteSearchSearch speech marks in the FTcom sitespeech marks In depthBreadcrumb trail navigation:FT Home > In depth > Global credit squeezeServicesUBS on Monday became the second large investment bank in a fortnight to be bailed out by a sovereign riches fund when it announced a SFr194bn ($17

2bn) recapitalisation diagram after revealing another $10bn of losses on subprime mortgage securitiesUBS was compulsory to turn to the administration of Singapore Investment Corporation (GIC) and an unnamed investor from the center East for funds to shore up its balance sheet after the fresh wounded emergedHowever, hopes that the fresh assets and writedowns might mark a turning point for UBS sent its shares up almost 2 per cent even though the Zurich-based bank warned that it could proclaim its first full-year loss since it was created a decade agoThat warning upturned a forecast made only in October that UBS would return to productivity in the fourth quarter, after posting its first quarterly loss in five existence in the previous three-month period because of subprime wounded

Marcel Ospel, UBS chairman, batted away suggestions that his trustworthiness had been undermined by the events“The firm wants me to wait,” he said “I required to be part of the solution and continue to contribute to the success of this firm I would be a coward if I left now

inside a reprise of Abu Dhabi’s $75bn asset in Citigroup late last month, GIC decided to inject SFr11bn while an unnamed Middle East investor will put up a further SFr2bn, both via mandatory convertible bondsUBS’s latest leadership implies fourth-quarter losses could exceed the SFr77bn earned after tax in the first nine months of this year

The bank would further boost its row 1 capital by SFr2bn by selling unissued shares, previously due to be cancelled, and by another SFr44bn by paying its bonus for 2007 in stock instead of money UBS said the combined moves would lift the bank’s Tier 1 assets ratio to more than 12 per centMarcel Rohner, leader executive, also defended UBS’s valuation of its subprime portfolio that led to October’s proceeds caution, saying the requirement for further writedowns had become apparent during late November

“In our judgment, these writedowns will make maximum clarity on this issue and will have the effect of substantially eliminating speculation,” he saidHuw van Steenis, psychoanalyst at Morgan Stanley, said UBS had “topped up the boiler at the cost of a possible 26 per cent dilution to earnings per split He estimated that UBS could take another SFr6bn of losses while maintaining a Tier 1 relation above 10 per cent“Some shareholders feel overly diluted, despite the new footing

UBS has known itself a good cushion if it wants to take more writedowns, not necessarily in subprime,” he said “As the bank shrinks the balance sheet it needs to be able to soak up hits elsewhere”Mr Ospel said the bank was underscoring its commitment to be among the most excellent capitalised in the earth in support of its wealth and asset management business, its other core activity alongside investment bankingmesh new money in wealth organization reached a record SFr30bn in October and November, heralding the best money-gathering district in the bank’s the past

Mr Rohner said a key reason behind the recapitalisation plan was to reassure private banking customers “We think it’s very important for the wealth organization business to operate with a strong capital base Our riches management clients are sensitive to that It puts us in a position to soak up future shocks

”Copyright The Financial Times Limited 2007Lex: UBS record - Dec-10European View: UBS chairman Ospel should fire himself - Dec-10UBS unlocks outside assets to absorb losses - Dec-10Editorial comment: Cyclical assets - Dec-10Singapore finance targets financial groups - Dec-10Marcel Ospel: UBS’s power broker - Dec-10More in this section* Minimum holdup 15 minutesAll era are London timeFT HomeSite mapContact usHelpAdvertise with the FTMedia centreStudent offersFT ConferencesFT SyndicationCorporate subscriptionsFT GroupPartner sites: Chinese FTcomLes EchosFT DeutschlandExpansionInvestors ChronicleExec-Appointmentscom© Copyright The Financial era Ltd 2007 "FT" and "Financial era" are trademarks of The Financial era Ltd

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