International
UBS takes additional $10bn subprime writedown and may report full-year loss; Government of Singapore and undisclosed Middle East investor to invest €7.9bn in the Swiss banking giant
By Finfacts Team
Dec 10, 2007, 08:14

UBS Bank headquarters, Zurich, Switzerland.

UBS, the Swiss banking giant, announced Monday a further $10bn writedown related to the US subprime crisis, coupled with the issue of SFr13bn (€7.9bn; $11.5bn) in new capital to two strategic investors from Asia and the Middle East.

Europe's second biggest bank said it would sell treasury shares, previously due to be cancelled, to raise a further SFr2bn in capital, and scrap its 2007 cash dividend in favour of an all stock issue. The move, which will have to be approved by an EGM shareholders’ meeting in February, will raise the bank’s Tier I capital ratio by an additional SFr4.4bn.

UBS has been scheduled to hold an investors’ day in London on Tuesday and at the end of October reported that net profit for the quarter fell to SFr2.2 billion (€1.39 billion; $1.76 billion) from 2.77 billion francs in the year-earlier period, said today that it was revising its outlook for its fourth quarter 2007 from an overall Group profit, as anticipated in its announcement of 30 October 2007, to a loss and it was “now possible” that it would report a loss of the full year.

The Asian investor is the Government of Singapore Investment Corporation Pte. Ltd. (GIC), which is investing SFr11 billion, and an undisclosed strategic investor in the Middle East, who has put up SFr2 billion.

Commenting on these announcements, Marcel Ospel, Chairman, UBS said: "Our losses in the US mortgage securities market are substantial but could have been absorbed by our earnings and capital base. Nevertheless, it is important to always maintain a notably strong capital position to support the continued growth of our wealth management business, which is the largest generator of value to UBS shareholders.

We are delighted to welcome these new long-term strategic investors to UBS. Singapore is already an important hub for the wealth management industry in general, and for UBS in particular, and we look forward to a fruitful partnership in the years to come.

In future, we will make certain that our investment banking operations grow by concentrating on serving the needs of institutional and corporate clients, and on maximising synergies with wealth and asset management."

Marcel Rohner, Group Chief Executive Officer, UBS, said: "Conditions in the US mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities. In the last several months, continued speculation about the ultimate value of our sub-prime holdings – which remains unknowable – has been distracting. In our judgement these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation. Together with the strengthening of our capital base this will allow us to concentrate on sustaining and developing our client businesses.

The combination of wealth management, asset management and investment banking in one integrated business remains the best model to grow our share of client business in each of these areas, and to capture both cost and revenue synergies. But in the future, investment banking growth initiatives will be expected to earn an appropriate risk-adjusted return on capital over an entire cycle, as well as being synergistic with the rest of UBS. To ensure this happens, we will continue to implement measures to reposition the Investment Bank in line with UBS Group strategy.

Losses in sub-prime are very disappointing but come at a time when most of our businesses are generating close to record levels of profit. I am confident that, after these writedowns and with a strong balance sheet, we are well positioned for growth and profitability."