UBS – If It Were a Film It Would Be the Never Ending Story
Sometimes weekend newspaper pickups go nowhere and sometimes you hit pay dirt. This morning, putting together "Squawk Box Europe", the team debated the merits of a story carried by the Swiss weekly the Sonntagszeitung. It said UBS management held an unscheduled board meeting at the weekend and could announce more sizeable writedowns.
UBS had refused to confirm or deny the report. The story also questioned whether the bank would make a major statement ahead of a planned annual investors' day in London on Tuesday 11th.
Despite the banks refusal to stand the story up, we ran it (attributed of course). These days it is hard to ignore a rumor about a bank without giving it a second glance. No matter that in this case CEO Peter Wuffli had already lost his job, the bank had already declared writedowns of $4.4bn and the third quarter saw it deliver a loss.
The markets will be hoping that this latest announcement of $10 billion dollars written off finally draws a line under the story.
The problem is that few investors will be convinced, and without that confidence we are still only at the beginning of this process of cleanse and purge. Some analysts also believe the bank's piecemeal approach to revealing bad news has been about managing its credit rating. The agencies now have the stock under review.
But there are some positives here:
1. A new source of capital is now firmly engaged in this process. The Asian and Middle Eastern wealth funds are taking on the problem. This transfers power and prestige and some control. They are too new to equity ownership for the market to have a clear sense of their ultimate ambitions, but the message so far seems to be that they are taking a long term strategic view of ownership.
2. The value of capital is being established. Citi paid 11 percent and UBS is paying 9 percent. This is crystallizing real prices for the banks and will get the market closer to real prices for the subprime debt they own.
Otherwise, it's grim out there in banking land.....and we will continue to keep a close eye on the rumors and speculation.
Feedback welcome - here.