Thursday, November 15, 2007

UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case....

They should have floated rumors/estimates of $ 20 billion and then surprise with a lower number like Barclays, Bear Stearns etc...... Sarcasm off..... :-) . UBS has just denied that they expect a big write down . I assume it depends on what is "big" . This comment doesn´t fit well with the comments from UBS at the beginning of the month.UBS: Further Writedowns Possible and this comment from the Wall Street Journal . The example Swiss Re doesn´t give much comfort either......

UBS hätte besser schon vorher Gerüchte über 20 Mrd $ streuen sollen um dann positiv zu überraschen ( siehe Barclays, Bear Stearns usw....... ;-). Gerade hat UBS einen größeren Abschreibungsbedarf dementiert. Ich denke es ist alles eine Frage was "groß" bedeutet. Was solche Dementies selbst aus der Schweiz heutzutage wert sind zeigt "eindrucksvoll" das Beispiel der Swiss Re ........ Auf jeden Fall harmoniert das Dementi nicht sonderlich mit dem Kommentar von Anfang November UBS: Further Writedowns Possible und diesem Kommentar aus dem Wall Street Journal .
Mr. Peace ( Lehman Brotehrs) said UBS may have to record an additional loss, because he compared UBS's and Merrill's exposure to a risky CDO slice known as the mezzanine piece. His analysis shows that UBS has triple the exposure to mezzanine CDO slices as Merrill Lynch yet so far has taken a quarter of the percentage write-down that Merrill took. UBS's holding does include some added protection against losses, Mr. Peace said.

Citi do a Whitney on UBS - “A major reversal of fortune” / FT
According to a note sent out to clients by Citi analysts today, we can “realistically” expect a further $12bn writedown from UBS in the next quarter.

UBS shareholders should also expect to see the dividend slashed, and the value of their equity diluted by a rights issue of up to $7bn. UBS, Citi’s Jeremy Sigee say dryly, will almost certainly need to recapitalise.

In other words, Citi are giving UBS the Meredith Whitney treatment. Is it true what they say - every bully was once bullied?

The difference, of course, is that Citi cut to the chase in disclosing its subprime losses - releasing details of its exposure and a breakdown of the figures. Not that it did Chuck Prince any good.

UBS, however, have been far more circumspect. Consider this table of banks’ disclosed exposure and writedowns on ABS CDOs:

Banks' writedowns

While UBS have the second highest ABS CDO exposure, they have taken one of the lowest writedowns.

Clearly, UBS are not marking their assets at current market prices, and are still heavily relying on marked to model prices. Consider also the fact that many of the CDOs UBS arranged and sponsored have been some of the worst hit - like the appropriately named Vertical Capital, a CDO whose AAA debt was slashed 14 notches to junk in one fell swoop.

Consider this table from Citi, which neatly summarises the price declines on MBS and CDOs (measured respectively by declines in the ABX and TABX indices from Markit) It’s pretty clear that UBS’s average writedown so far is paltry ABS and CDO tranche values

Citi outline three possible scenarios for UBS:
First we assume markdowns similar to Merrill Lynch. Under that scenario, UBS would need to take markdowns of SFr 6.7bn in 4Q07. Translating this revenue shortfall one-to-one to PBT (thereby assuming no clawback on the cost side), the group’s PBT would be -SFr 3.2bn for a net loss of SFr2.3bn. The Tier 1 ratio would be 9.5% under Basel I and 9% under Basel II. This is below the group’s target. However, cancelling the dividend (SFr4.2bn) would bring back the ratio to 10% under Basel II.

The second scenario takes conclusions from our Fixed Income credit strategists, assuming 30% writedowns on HG ABS CDOs and 60% on mezzanine ABS CDOs. UBS would report a loss of SFr 7.9bn in 4Q07, its Tier 1 ratio would drop to 8.1% (Basel I) and 7.6% under Basel II. The Tier 1 would remain below target even if the dividend were cut, raising the possibility of a capital shortfall.

The third scenario is a worst-case scenario. Under this scenario (50% writedowns on HG ABS CDOs and 100% on mezz ABS CDOs), UBS would end up with a substantial SFr22bn writedown. The group’s Tier 1 ratio would drop to 5.8% (Basel II). Even after cutting the dividend and accounting for a lower group Tier 1 ratio of 9% (Basel II), a capital shortfall of SFr 8.5bn would remain, raising the prospects of a large capital increase/rights issue.

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Anonymous Anonymous said...

How is it that Citi feels qualified to comment on anyone else's business? They didn't even see the termites in their own building, why are they trying to appraise others? This is all so childish. I am glad we get to see the bankers for what they are.

6:06 AM  
Blogger jmf said...

Moin Edgar,

the analysts are useless.

Common sense beats them every time (often with a lag...)

The funny thing is that the guys on CNBC etc are pounding the table that the worst is behind us.

I´ve switched today to CNBC because Jack Bogle was announced as a host.

He was the only guy that made sense. The rest of the crew tries to spin every news possible as "great news"

This was a good reminder why i have stopped watching this crap since 2005.


6:20 AM  
Anonymous Anonymous said...

Das heißt...containment, vermute ich.


9:08 AM  
Blogger Yogi said...

Moin J-M,

I'll bet the phrase "worst case exposure" will be remembered the way "contained" was a few months ago ;)

O.T. thanks for posting that cartoon about using Nigerian e-mail scams as collateral. That really made my day!

11:02 AM  
Anonymous Anonymous said...

Its cats, dogs, and containment out there. Love it!

The gloves are off, the bonus pools shrinking, pens sharpened, girlfriend's screaming, crowds jeering, yes it'SMarkdown Time!!!

2:36 PM  
Blogger jmf said...

Moin together,

"worst case exposure" will be remembered the way "contained" was a few months ago ;)

Excellent! :-)

I have read that the UBS will/want pay bonuses with thier own shares. No kidding!

10:21 PM  
Blogger jmf said...

Klirrende Kälte in der realen Welt

Die Wochenlöhne des gemeinen US-Volks liegen real um 0,3 Prozent unter dem Vorjahr, wobei die Beschäftigung laut der Umfrage unter den Privathaushalten zuletzt bloß noch um 0,5 Prozent höher als vor einem Jahr war. Der Gewinn im S&P 500 ist im dritten Quartal um rund zwei Prozent gefallen, was bei einer Inflationsrate von nun 3,5 Prozent einem realen Minus von mehr als fünf Prozent entspricht. In Euro gerechnet liegt der Index um mehr als acht Prozent unter dem Vorjahr. Die Inflation im Euro-Raum von gut zweieinhalb Prozent berücksichtigt, entspricht das einem realen Minus von gut zehn Prozent. Derweil ist in Europa der Stoxx 600 am Donnerstag zwischenzeitlich unter den Jahresanfangsstand gefallen - und lag zum Börsenschluss noch 1,55 Prozent über dem Vorjahr. Real korrespondiert das mit einem Minus von einem Prozent. Selbst der MSCI Welt inklusive Schwellenländer notiert in Euro umgerechnet ziemlich genau auf dem Niveau von vor zwölf Monaten. Nominal.

Manche mögen auf einen starken Jahresendspurt zählen. Aber die Hoffnung ist verwegen. Denn die für 2008 vorhergesagten Gewinnsteigerungen von 14 Prozent in den USA und zehn Prozent in Europa sind nun, da das auf Kreditexpansion und Vermögenspreisinflation basierte Wirtschaftsmodell den Geist aufgibt, geradezu utopisch. Die herumgereichten KGV sind deshalb nahezu nutzlos. Europäische Banken etwa kosten angeblich gerade mal den knapp neunfachen 2008er-Gewinn. Wenn man allerdings einmal eine Eigenkapitalrendite von acht statt von fast 16 Prozent unterstellt, läge das KGV bei 17,5. Und es wäre gewagt, darauf zu wetten, dass die Banken selbst aus der laufenden Kreditkrise mit einer Eigenkapitalrendite in Höhe der Eigenkapitalkosten herauskommen. Dabei ist das 2007er-Kurs-Buchwert-Verhältnis von 1,5 der Banken im Vergleich zu den nichtfinanziellen Sektoren inzwischen geradezu kümmerlich. Die nichtfinanziellen Sektoren kommen auf 2,7.

3:27 AM  
Blogger jmf said...

Citigroup isn´t alone with the loss estimate

UBS Faces `Substantial' CDO Losses, CreditSights Says

UBS AG, Europe's largest bank by assets, may have lost as much as $9 billion on collateralized debt obligations, according to CreditSights Inc.

The losses would be almost half the Zurich-based bank's $20 billion of top-rated CDOs, securities based on underlying assets. CreditSights, the independent research firm in New York, based its analysis on the bank marking down its holdings to prices indicated by benchmark indexes rather than methods used by UBS.

``While we do not expect it to make the additional $9 billion of writedowns estimated by our model, we do not see how it can avoid further substantial losses,'' CreditSights analysts led by Simon Adamson in London said in the report. ``UBS is by far the most vulnerable bank in absolute terms'' out of the nine European banks surveyed by CreditSights, the report said.


UBS spokesman Dominik von Arx in London said the bank expects to report a profit in the fourth quarter. ``Speculation of $9 billion writedowns isn't compatible with that outlook,'' von Arx said in a phone interview.

1:10 AM  
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8:34 PM  

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