UBS Launches $15.5 Billion Discounted Rights Issue

Swiss bank UBS launched a deeply discounted rights issue worth 16 billion Swiss francs ($15.55 billion) on Thursday at a third below its latest market price in a bid to lure investors to repair its battered balance sheet.

The emergency offering, at 21 francs per share -- a whopping 73 percent below its peak price less than one year ago -- illustrates the extent of UBS's troubles after the world's largest wealth manager was forced to write down around $37 billion of assets hit by the U.S. subprime mortgage crisis.

The price comes far below what some analysts had expected in recent weeks, when speculation had centred around 24-25 francs per share, but above the 17-20 franc price feared by some, which would have meant a massive dilution for existing shareholders.

Analysts at bank Wegelin said the issue details may help UBS, Europe's hardest-hit bank by the subprime crisis, put the crisis in the past and help investors focus on the performance of the new management team after a boardroom sweep last year.

"With the capital hike, a huge uncertainty that had burdened UBS has been cleared off the table," Wegelin said in a note to clients.

"But it can't disguise the fact that UBS shares don't make a great impression."

UBS shares have shed more than 36 percent so far in 2008, forcing the bank to bring the emergency rights issue to market at a low level to ensure support.

UBS said it would issue over 760 million new shares and offer existing shareholders seven new shares for every 20 they hold.

What Lies Ahead?

UBS is busy restructuring and offloading distressed assets after heavy losses originating in the U.S. mortgage debt crisis forced it into two emergency capital-raising exercises.

The issue details mark the final, publicly announced step by UBS to put the worst crisis in its history behind it.

But speculation is rampant that the group will still be forced to sell off some divisions, such as U.S. wealth management or even its entire investment banking unit, the source of the losses.

The rights issue will take the Swiss bank's capital-raising measures, which include cash injections from Singapore and a Middle East investor, to around 37 billion francs -- almost the same as its $37 billion in writedowns from the crisis.

On Wednesday the group finalised a $15 billion deal to sell weakened mortgage-related assets to U.S. fund manager Blackrock, in a deal similar to one used by Citigroup.

The rights issue has been fully underwritten by a syndicate of banks led by J.P. Morgan, Morgan Stanley, BNP Paribas and Goldman Sachs.

The bank had set itself a limit of issuing 1.25 million shares at most, which would have resulted in an issue price of 12 francs per share and a massive dilution in the stock.

Analysts polled by Reuters expect the group to post around 5 billion francs in net losses in 2008, worse than the 4.4 billion franc loss in 2007, after already posting a first-quarter loss of 12 billion francs.

Shares of UBS closed 1.1 percent higher on Thursday.