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UBS
declines on report "fire sale" may lead to more
writedowns
Elena Logutenkova & Sarah
Jones
Bloomberg
7 Mar
08
http://www.bloomberg.com/apps/news?pid...
UBS
AG fell to a five-year low in Swiss trading after JPMorgan Chase
& Co. analysts said it probably sold 25 billion francs ($24
billion) of mortgage-backed securities in a "fire sale'' and
may have more writedowns.
Europe's biggest bank by assets
fell as much as 4.2 percent to 30.88 francs after analysts
including Kian Abouhossein raised their markdown forecast to 18.5
billion francs ($17.9 billion) from 15 billion francs. Merrill
Lynch & Co. and Morgan Stanley also forecast wider losses at
UBS from a sell-off of so-called Alt-A home loans to borrowers
with better than subprime credit.
"It is highly
likely that UBS sold its 25 billion-franc face value prime Alt-A
portfolio in a fire sale,'' Abouhossein wrote in the note, dated
March 5. "We believe UBS would be willing to aggressively
reduce structured credit assets to clean up the book.''
UBS
marked down about $19 billion last year, posting the first annual
loss since the Zurich-based bank was created in 1998. Valuations
of AAA rated securities backed by Alt-A loans, which range
between prime and subprime in their likelihood to default, fell
as much as 15 percent last month, U.S. lender Thornburg Mortgage
Inc. has said.
The Swiss bank traded down 2 percent at
31.60 francs as of 11:44 a.m. The company has declined 55 percent
in the past 12 months, giving it a market value of 65.5 billion
francs.
UBS spokeswoman Tatjana Domke declined to comment
on the analysts' reports.
No dividend
Merrill
analyst Derek de Vries increased his forecast for markdowns at
UBS to $21 billion from $13 billion, and Morgan Stanley analysts
raised their estimate to as much as $25 billion.
Abouhossein
and Morgan Stanley's Huw Van Steenis and Solveig Babinet forecast
the company will not pay a dividend this year. Even with no
dividend payment, UBS may have to raise capital again if
writedowns exceed $16 billion, Merrill's De Vries said.
UBS
already sold 13 billion francs in bonds that will convert into
shares to investors in Singapore and the Middle East, and said it
will resell treasury shares to replenish capital. Last month,
shareholders also approved a plan to replace the 2007 cash
dividend with stock.
To cut debt assets affected by the
subprime crisis, the bank put a group of about 50 traders in
charge of managing and reducing more than $70 billion in
securities.
"UBS has set a new strategic direction
with the asset fire sale, following a period of mainly orderly
asset sales within the global banking system,'' Abouhossein
wrote, lowering his share- price estimate by 1 franc to 55
francs. "UBS actions have led to a spilling over into
credit-market prices.''
Prices of about 70 cents on the
dollar for the Alt-A assets in the fire sale are "realistic,''
Abouhossein said.
UBS held $21.2 billion in AAA rated
Alt-A securities at the end of last year, which were marked down
on average to 96 cents on the dollar, and an additional $5.4
billion in other Alt-A assets, whose value was taken down on
average to 61 cents on the dollar.
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