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UBS posts US$10 billion writedown

UBS AG, Europe's largest bank by assets, said it will write down US subprime investments by US$10 billion and raise 13 billion francs (US$11.5 billion) by selling stakes to investors in Singapore and the Middle East.

UBS expects a loss in the fourth quarter and possibly for this year, the Zurich-based company said in an e-mailed statement yesterday. Government of Singapore Investment Corporation Pte will invest 11 billion francs through the purchase of mandatory convertible bonds, while an unidentified Middle Eastern investor will invest 2 billion francs, UBS said.

Securities firms and banks had announced about US$66 billion in losses and markdowns linked to the collapse of the US subprime mortgage market this year. UBS reported its first loss in almost five years in the third quarter after the subprime contagion led to about US$4.66 billion in markdowns on fixed-income securities and leveraged loans.

"The industry has been moving to more aggressive markdown rates" on subprime-related assets, Kinner Lakhani, a London-based analyst at ABN Amro Holding NV with a "hold" rating on UBS shares, said before yesterday's release. UBS' previous writedowns had been "well below industry benchmarks."

UBS follows Citigroup Inc, the largest US bank, in taking on strategic investors to bolster capital. The New York-based bank announced last month a US$7.5 billion cash infusion from Abu Dhabi to replenish capital after record mortgage losses wiped out almost half its market value.

UBS shares have fallen 21 percent over the past 12 months, erasing more than 25 billion francs of the bank's market value. The 63-member Bloomberg Europe Banks and Financial Services Index fell 11 percent over the same period.

UBS also plans to sell 36.4 million treasury shares that it previously intended to cancel, raising about 2 billion francs, and proposed replacing this year's cash dividend with stock, boosting capital by 4.4 billion francs.

The bond sale and dividend replacement will have to be approved by an extraordinary shareholders meeting in mid-February, the bank said.

The bank's losses already cost the jobs of chief executive officer Peter Wuffli, his finance chief Clive Standish, investment-banking head Huw Jenkins and 1,500 people at the securities unit. Mounting writedowns also increase the pressure on chairman Marcel Ospel, newspapers including Sonntag have reported.

Marcel Rohner, who was named CEO in July, CFO Marco Suter and chief risk officer Joseph Scoby are scheduled to give analysts and investors a business update in London tomorrow.

"In the last several quarters, continued speculation about the ultimate value of our subprime holdings -- which remains unknowable -- has been distracting," Rohner said in the statement. "These writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation."

The bank was expected to write down about 2.6 billion francs in the fourth quarter, according to the average estimate of five analysts who published forecasts over the past month.

"Equity markets would like the full clean up," Kian Abouhossein, a London-based analyst at JPMorgan Chase & Co. with an "overweight" rating on UBS, said before yesterday's announcement.

UBS said on Oct. 30 that it had US$16.8 billion invested directly in residential mortgage-backed securities at the end of the quarter.

It also had US$1.8 billion of collateralized debt obligations, bonds created by repackaging other debt securities, as well as US$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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