UBS to Sell Stakes After $10 Billion in Writedowns

UBS to Sell Stakes After $10 Billion in Writedowns (Update2)

By Elena Logutenkova

Dec. 10 (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.

``UBS was quite clever this time to couple some extremely bad news with some good news,'' said Dieter Winet, who helps manage about $50 billion including UBS shares at Swisscanto Asset Management. ``It's positive that capital is placed in firm hands. This will help restore trust in private banking and asset management and help UBS write new business.''

UBS shares fell as much as 3.4 percent, and were down 1.2 francs, or 2.1 percent, to 56 francs by 9:04 a.m. in Zurich trading. The shares have fallen 23 percent over the past 12 months, erasing more than 25 billion francs of the bank's market capitalization.

Citigroup, Fortis

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.

New York-based Citigroup announced last month a $7.5 billion cash infusion from Abu Dhabi after record mortgage losses wiped out almost half its market value. Ping An Insurance (Group) Co., China's second-largest insurer, bought a 4.18 percent stake in Fortis for 1.81 billion euros ($2.7 billion).

``Because there's a lot of liquidity in those countries and those sovereign wealth funds, they'll be looking for investment opportunities,'' said Masafumi Oshiden, a Tokyo-based fund manager at BlackRock Japan Co., whose parent company holds $1.1 trillion in assets. ``The valuations have come down a lot.''

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.

`More Aggressive'

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.

The bank posted its first loss in almost five years in the third quarter after the subprime contagion led to about $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 today's release. UBS's previous writedowns had been ``well below industry benchmarks.''

The bank's losses already cost the jobs of Chief Executive Officer Peter Wuffli, his finance chief Clive Standish and investment-banking head Huw Jenkins.

``We believe that we have made sufficient value adjustments now,'' Chairman Marcel Ospel told Swiss radio DRS. ``I find it very difficult to imagine even worse consequences.''

`Maximum Clarity'

Ospel said neither he nor the board of directors considered his resignation. The bank has completed most of the 1,500 job cuts announced earlier this year at the securities unit and will finish the rest by the end of the year, he said.

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.

Credit-default swaps tied to the Zurich-based bank's debt rose 1 basis point to 57 basis points, according to Deutsche Bank AG. The cost of credit-default swaps, used to speculate on the ability of companies to pay their debts, rise as perceptions of credit quality worsen.

UBS said on Oct. 30 that it had $16.8 billion invested directly in residential mortgage-backed securities at the end of the quarter. It also had $1.8 billion of collateralized debt obligations, bonds created by repackaging other debt securities, as well as $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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