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Sat 16 Feb 2008 11:41 AM

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UBS writedowns risk jeopardising Mideast cash injeciton

Swiss bank could face billions of dollars more in subprime losses, analysts warn.

Swiss bank UBS could face billions of dollars more in subprime-related writedowns in 2008, which could tip it into a second year of losses, analysts warned investors, sending its shares tumbling again.

More writedowns could spell trouble for UBS's plans to bolster capital with a 13 billion franc injection from Singapore and an unnamed Middle East investor. The plans are due to be put to a shareholder vote at an extraordinary meeting on February 27.

The two investors will take a stake in UBS by subscribing to a mandatory note that is convertible into the bank's stock.

Even if the capital injection is approved, UBS might have to contemplate a rights issue, unless it can keep new writedowns to no more than 10 billion francs and spread the losses over the year, rather than take a huge charge in a single quarter.

Some said UBS might be only halfway through clearing the debris from the subprime loan disaster that has already saddled it with $18 billion in charges in 2007.

The prognosis knocked UBS shares down 5.93% to 35.24 francs by 1130 GMT on Friday, a day after falling 8% on the news that the company had at least $80 billion in exposure to subprime loans and other risky debt, nearly three times more than it had previously disclosed.

"The disaster is much worse than we had thought," said Dirk Becker, analyst at Landsbanki Kepler in Frankfurt. "It looks like they face another very bad year, and a loss for 2008 is not inconceivable."

Equity analysts at Citigroup said UBS might have to spend 12 to 20 billion Swiss francs on additional writedowns.

Others, including Lehman Brothers, which tallied UBS's exposures at $97.3 billion, said a writedown of 10 billion francs was on the cards.

"A further 10 billion-franc writedown would eliminate all profit for 2008, which would likely be a negative for the stock price," said Lehman in a note.

A UBS spokesman said on Friday "our exposures are disclosed", but declined to comment on speculation of more writedowns.

"If your starting point for exposures is an $80 billion number, then it is not off the wall to think that a quarter of that could be in trouble," said one analyst with an investment bank who asked not to be identified.

The Swiss bank, the world's largest manager of affluent people's money, is already Europe's biggest casualty of the credit crunch by far.

It has replaced nearly all its top management and watched its share price more than halve since June, when the force of the subprime crisis began to register.

Analysts said they were exasperated with some of UBS's unexpected disclosures on Thursday, including an $11.2 billion net exposure to a complex structured credit called a reference-linked note programme.

"Will another position come out? What's next? This is the worry," said Andreas Venditti, an analyst at ZKB in Zurich. (Reuters)

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