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UBS in Shareholder Plea as Subprime Fallout Weighs

Reuters
Friday, 11 Jan 2008 | 7:58 AM ET

UBS has appealed to its shareholders to back a capital injection by the Singapore government and a Middle East investor but warned it still cannot predict how the subprime crisis will play out.

UBS's made the appeal in letter to shareholders released on Friday, and it comes after the New York Times reported Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments.

The Swiss bank is braced for what looks set to be a stormy shareholder meeting on Feb. 27 when it will seek approval for a capital increase, resulting in the sale of a 9 percent stake to the Singapore government and around 1.5 percent to an unidentified Middle East investor.

UBS said it had decided against undertaking a rights issue to raise capital on the grounds of cost, complication and time.

"During 2008, the environment for financial markets, especially in the U.S., is uncertain, and we need to manage through this period from a position of financial strength," the bank said in a letter to shareholders, dated Jan. 10 and released to media on Friday.

Shares in the bank were 0.9 percent higher.

UBS Sees Difficult Year Ahead
UBS told shareholders Friday it cannot predict the ultimate impact of the US subprime contagion on the Swiss bank. Bob McDowall from TowerGroup has analysis on the financial sector.

UBS has been one of the biggest casualties of the collapse in the U.S. subprime mortgage market, which resulted in billions of dollars in writedowns by banks in the value of their securities portfolios.

In December, UBS announced a new $10 billion writedown on its subprime-related exposures, which came on top of an earlier charge of $4.4 billion on UBS's risky subprime exposures.

"We cannot, at this time, accurately predict the future development of U.S. residential mortgage markets and therefore the ultimate impact on our positions in sub-prime mortgage related securities," the letter said.

Shot Across the Bow

Analysts at bank Wegelin said the letter was a likely "shot across the bow of those who wish to put up resistance to the capital-raising measures."

Landsbanki Kepler analyst Dirk Becker said the UBS letter was likely an attempt to explain matters to shareholders and not an attempt to send a new message.

"They are saying that if there are further declines they won't need further capital and this is reassuring. But you would expect this in such a letter," Becker said.

"We should not read anything into this. The next message will be on Feb. 14 when UBS posts its results," he said.

Last month, the Government of Singapore Investment Corporation (GIC) and a Middle East investor pumped 13 billion Swiss francs ($11.7 billion) of fresh capital into UBS by agreeing to subscribe to a mandatory convertible bond.

UBS said it was confident its capital position would now remain strong even if the U.S. housing market continued to deteriorate.

In December, shareholder advocacy group Ethos urged more clarity from UBS over its subprime losses and said it would call for an independent probe if UBS's answers to a list of questions it has put to the bank were unsatisfactory.

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