More Pain Ahead for UBS?
Lehman's Warning
Spurs New Concerns
About Write-Downs
By KATHARINA BART
June 10, 2008; Page C2
ZURICH -- Investors are bracing for more write-downs on mortgage securities from Switzerland's UBS AG after prices for such holdings have worsened dramatically in recent weeks, and as rival Lehman Brothers Holdings Inc. disclosed a profit warning.
Write-downs announced Monday by Lehman Brothers are "clearly indicative of further write-downs for UBS, as is the deterioration in AAA-rated securities and the U.K. mortgage market," said Peter Thorne of independent brokerage Helvea in London.
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The darkening outlook comes as UBS is completing a 15.97 billion Swiss franc ($15.67 billion) capital-raising by selling shares at a discount to existing holders in a so-called rights issue. It is expected to announce results of the issue Friday and, so far, the bank appears on track to succeed.
UBS shares fell 3.2%, or 80 Swiss cents, to 23.82 francs, still above the 21-franc price set for the rights issue.
Some UBS executives and board members have been selling their rights to buy shares in moves that effectively decrease their ownership in the bank. As of last Friday, senior managers and members of the board, including John Fraser, chairman and chief executive of the asset-management unit, and Raoul Weil, chairman and chief executive of global wealth and business banking, had sold more rights to new shares than they bought or exercised, according to regulatory filings.
A spokesman for UBS in Zurich declined to comment on any individuals who have sold, bought or exercised their rights. In a statement, UBS said, "It is important to note that all top function holders are obliged to have significant holdings in UBS shares."
Zurich-based UBS could post a second-quarter net loss as the value of subprime and other housing securities it still holds have fallen in recent weeks, analysts said.
UBS has more than $15 billion in subprime holdings and more than $17 billion in so-called Alt-A residential mortgage securities, minus $15 billion in subprime and Alt-A assets it sold to BlackRock Inc. in May. Alt-A mortgages are slightly less risky than subprime loans.
Javier Lodeiro, Zurich-based analyst with German private bank Sal. Oppenheim, estimates that UBS will have to take write-downs worth several hundred million francs given the unfavorable market movements in recent weeks. That figure may rise before the quarter closes June 30, he added.
UBS declined to comment Monday on write-down estimates. When it proposed its capital-raising plan to investors, UBS said further write-downs may hit earnings, and it said in May that some asset classes continued to deteriorate and will hamper future earnings. It is scheduled to report earnings for the quarter on Aug. 12.
UBS is guaranteed to receive the funds from its rights issue because four investment banks have agreed to fully underwrite it. Tuesday is the last day for U.S. investors to subscribe to the issue, and Thursday is the last day for European investors.
UBS is among a string of banks seeking funds from investors to bolster their capital after mortgage losses. On Monday, Royal Bank of Scotland Group PLC fully sold its £12 billion ($23.64 billion) rights issue, also at a steep discount. But midsize British mortgage lender Bradford & Bingley had to cut the price and size of its right issue.
In the case of UBS, 760.3 million new shares will be created through the rights issue. The 21-franc price is 31% lower than the stock's 30.64-franc closing price on May 21, the day before the pricing was announced.
--Renee Schultes contributed to this article
Write to Katharina Bart at katharina.bart@dowjones.com |
