UBS May Seek Approval for Capital Increase, Sonntag Says

UBS May Seek Approval for Capital Increase, Sonntag Says

March 30 (Bloomberg) -- UBS AG, the European bank with the highest losses from the U.S. subprime crisis, may ask shareholders to approve a capital increase of as much as 16 billion Swiss francs ($16.1 billion), Sonntag newspaper said, citing people it didn't identify.

UBS needs money to keep its Tier 1 capital ratio at 12 percent, the newspaper reported, adding UBS will also report a first-quarter loss after writing down as much as 15 billion francs on the value of debt securities. Sonntag said UBS is suffering from a cash drain after customers in the Zurich area alone removed funds worth 700 million francs as of March 26.

UBS, whose 12.5 billion-franc loss in the fourth quarter was the biggest ever reported by a bank, has said it expects 2008 to be ``another difficult year.'' Christoph Meier, a spokesman for the Zurich-based bank, declined to comment on the report.

``A further capital raising looks like a realistic possibility in 2008,'' Derek De Vries, an analyst at Merrill Lynch & Co. in London, said in a note this month. He estimated that the bank could bear about $16 billion in writedowns if it pays no dividend and doesn't sell more shares.

More losses may increase pressure from investors on Marcel Ospel, the bank's chairman, who is standing for re-election at the annual shareholders meeting on April 23. Writedowns already cost the jobs of former Chief Executive Officer Peter Wuffli, finance chief Clive Standish, and investment banking head Huw Jenkins, as well as other senior bankers at the securities unit.

Loan Losses

A separate report in SonntagsBlick today said UBS may name Switzerland's former justice minister Christoph Blocher to replace Ospel. It cited a ``high-level UBS manager'' it didn't identify as saying the search for his successor has ``started on an informal basis,'' and that while the person wouldn't necessarily be a banker, they would have Swiss nationality. The newspaper said Blocher declined to comment. Meier also declined to comment.

The reports come as the world's biggest banks have suffered losses on debt investments and loan losses of about $208 billion, according to Bloomberg data. Bear Stearns Cos. in March agreed to be sold to JPMorgan Chase & Co. after clients, alarmed by speculation about a cash shortage, withdrew money.

UBS, which posted its first ever annual loss after $19 billion in writedowns last year, may have to mark down debt securities by about the same amount again in 2008, according to the median estimate of five analysts.

Managing Assets

UBS in January set up a group of about 50 traders, whose task is to manage and reduce more than $70 billion in debt assets affected by the subprime crisis. The bank may put the unit into a separate ``bad bank'' division to better show how the rest of the business develops, analysts including Bear Stearns Cos.' Christopher Wheeler and JPMorgan's Kian Abouhossein have said.

UBS said in its annual report, published March 27, that it's improving risk control mechanisms, after underestimating the potential losses from U.S. mortgage assets. It put in place new models for risk management and the valuation of U.S. residential real estate assets at the investment bank in the first quarter.

For the fourth quarter the bank said on Feb. 14 it was taking $14.4 billion in writedowns on assets and loans infected by the subprime crisis.

Those writedowns included $10.8 billion on subprime residential mortgages, $2 billion on so-called Alt-A mortgages, which fall between subprime and prime, and $871 million on credit protection purchased from monoline insurers. The bank recorded losses of about $500 million on commercial real estate and about $200 million on loans for leveraged buyouts.

UBS shares have tumbled 45 percent this year, making them the second-worst performer on the 60-member Bloomberg Europe Banks and Financial Services Index.

BLOOMBERG