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UBS shocks with $14b in sub-prime write-downs

ZURICH – SWISS bank UBS, Europe’s largest lender by assets, unveiled US$10 billion (S$14.4 billion) in astounding sub-prime write-downs yesterday.

The bank’s losses has already cost the jobs of chief executive officer (CEO) Peter Wuffli, his finance chief Clive Standish, investment-banking head Huw Jenkins and 1,500 people at the securities unit.

The US$10 billion charge was one of the largest writedowns by any global bank since the United States subprime crisis broke, and was the latest sign of the devastation wrought upon some of the world’s largest financial institutions from the crisis.

UBS said it will raise 13 billion Swiss francs (S$16.6 billion) by selling stakes to Government of Singapore Investment Corp and an unnamed Middle East investor.

The news sent UBS’ shares tumbling as investors took fright from the anticipated dilution of their share of earnings, but they managed to recover sightly later in the day.

‘The level of dilution is very significant,’ said ABN Amro analyst Omar Fall.

UBS expects a loss in the fourth quarter and possibly for this year, it said yesterday. Securities firms and banks had announced about US$66 billion of losses and markdowns linked to the collapse of the US sub-prime mortgage market this year.

UBS reported its first loss in almost five years in the third quarter after the subprime contagion led to about US $4.66 billion in markdowns on fixed-income securities and leveraged loans.

The announcement comes on the eve of an investor day in London today at which top managers like UBS CEO Marcel Rohner are due to address analysts and investors.

UBS also said it would approve the resale of 36.4 million treasury shares previously intended for cancellation, raising Tier 1 capital by about two billion Swiss francs.

‘In the last several quarters, continued speculation about the ultimate value of our sub-prime holdings – which remains unknowable – has been distracting,’ Mr Rohner said in the statement. ‘These write-downs will create maximum clarity on this issue and will have the effect of substantially eliminating speculation.’

 

Source: BLOOMBERG NEWS, REUTERS (The Straits Times 11 Dec 07)

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