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UBS
write-downs could double
Andrew
Hurst
Reuters
16 Feb
08
http://www.reuters.com/article/pressReleasesMolt/idUSL1569185720080215
Swiss
bank UBS could face billions of dollars more in subprime-related
write-downs in 2008, which could tip it into a second year of
losses, analysts warned investors, sending its shares tumbling
again.
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 percent to 35.24 francs by
1130 GMT on Friday, a day after falling 8 percent 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
write-downs.
Others, including Lehman Brothers, which
tallied UBS's exposures at $97.3 billion, said a write-down of 10
billion francs was on the cards.
"A further 10
billion Sfr write-down 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 write-downs.
"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.
What
next?
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
program.
"Will another position come out? What's
next? This is the worry," said Andreas Venditti, an analyst
at ZKB in Zurich.
More write-downs 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 write-downs to no more than 10 billion francs and spread the
losses over the year, rather than take a huge charge in a single
quarter.
Larger losses would push its tier 1 capital ratio
below 10 percent, a level that analysts say is critical for the
bank to maintain its profile as a top-flight wealth manager and
investment bank.
"We believe it has sufficient
additional capital to absorb further write-downs without further
recourse to a further capital injection," said
Lehman.
Lehman said it based its assumption on the capital
injection going through, which would give the bank 6-7 billion
francs of excess capital, and on UBS making net profits of 9
billion francs in 2008, excluding any charges from
write-downs.
Reporting
by Andrew Hurst, additional reporting by Thomas Atkins, editing
by Will Waterman
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