UBS will write down $19 billion
ZURICH, Switzerland (AP) - April 1, 2008 UBS revealed more serious damage from exposure to the U.S.
subprime crisis and said it expects write-downs of approximately
$19 billion.
As UBS Chairman Marcel Ospel stepped down, Deutsche Bank AG,
Germany's largest bank, announced similar write-downs of about $4
billion.
It was the latest indication of how far the severe plunge in
U.S. housing prices and a credit crisis triggered by rising
mortgage defaults has reached.
UBS write-downs for the past nine months have reached $37.4
billion, the largest reported by any bank to date.
Standard & Poor's cut the bank's credit rating one notch to AA-,
citing "risk management lapses, earnings volatility and need for
new capital."
UBS said that after it raises new capital, its Tier 1 capital
ratio, a key indicator of a bank's ability to absorb losses, would
be about 10.6 percent. That is well above minimum European
requirements of 4 percent and bank shares rose 8.66 percent to
31.36 francs ($31.53).
Ospel said he was ultimately responsible for the bank's health
as he stepped down.
"My willingness to stand for re-election for a further one-year
term was based on my desire to lead UBS out of its current
difficult situation," Ospel said. "We have worked very hard and
have been able to address the firm's most pressing problems,
thereby laying the foundation for the long-term success of the
bank."
The bank said its move to raise capital through a rights issue
that would be fully underwritten by four leading international
banks and would enable it to remain "one of the world's strongest
and best capitalized banks."
"In the first quarter, UBS substantially reduced its real
estate related positions through both valuation adjustments and
significant disposals," the bank said.
It said it would create a new unit to "hold certain currently
illiquid U.S. real estate assets."
"UBS is confident that these measures will deal effectively
with the firm's real estate exposures and allow the bank to focus
on strengthening its core operations," the statement said.
Chief Executive Marcel Rohner said, "We believe this capital
increase and the creation of a vehicle to separate problem assets
from the remainder of our businesses will allow us to return to
sustainable value creation over time."
He said profits from most of the bank's businesses "remained
acceptable in challenging conditions" during the first quarter.
"We have made further prompt writedowns and sales of our
impaired U.S. real estate-related positions," Rohner said. "We
have reduced risk weighted assets and implemented measures to
control costs and strengthen the structure of the firm."
However, he said, UBS wants to avoid selling at "severely
distressed levels."
"With these measures we have created the basis to weather one
of the most difficult periods in the history of the industry,"
Rohner said.
The measures show the bank continues to trim risky assets. The
bank said its exposure to U.S. subprime mortgage related positions
declined to approximately $15 billion from $27.6 billion on Dec.
31.
The exposure to Alt-A positions - which are less risky than
subprime loans - was reduced to $16 billion (10.1 billion euros)
from $26.6 billion, it said.
The efforts at minimizing exposure will be accompanied by an
undisclosed number of job cuts and a further tightening of risk.
The measures mean that UBS is now a restructuring stock,
analysts at JP Morgan wrote in a note to investors.
"We conclude UBS is aiming to put a line below its
risk-exposure problem and refocus on operational business," JP
Morgan's Kian Abouhossein said.
But Octavio Marenzi, head of financial consultancy Celent, said
the UBS disclosures were "a clear indication that we are not out
of the woods yet in terms of the credit crisis."
"Indeed, the storm clouds are gathering ever more rapidly over
the banking industry and, in particular, the U.S. banking industry,
where most of UBS's losses originated from," Marenzi said.
He predicted the U.S. banking industry is set to see its first
contraction in overall revenues in more than forty years. "This
will inevitably lead to staff reductions, and we expect to see the
U.S. banking industry shed about 200,000 jobs in the coming 12 to
18 months," Marenzi said.
Earlier this year UBS posted a 12.45-billion franc loss for the
fourth quarter of 2007, after writing down 15.6 billion francs tied
to U.S. subprime mortgages, and said it expected another difficult
year ahead.
The bank posted a net loss of 4.38 billion francs for 2007, its
first annual loss.