Sunday, December 09, 2007

Multiple Fire Sales At UBS After $ 10 Billion Write Down

Looks like the UBS comment from just a few weeks ago in UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case.... that the write down´won´t be big was quite an understatement..... Will be fun to watch how long the term "maximum clarity" will be up to date this time ;-) . I´m pretty sure that the same survey about bonuses for the UBS will bring less "euphoric" results..... It´s about time to learn the new version of the Investment banking lexicon: The post-credit squeeze edition. HILARIOUS!

Sieht ganz so aus als wenn der Kommentar der UBS in UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case.... das die Abschreibungen nicht "wesentlich" sein werden ein wenig untertrieben gewesen ist. Welch Überraschung..... Wird spannend zu sehen sein wie lange die Haltwertzeit der "maximum clarity" in diesem Falle vorhalten wird ;-) . Ich bin mir ziemlich sicher das die gleiche Umfrage zu Bonuszahlungen" für die UBS weniger "euphorische" Vorhersagen hergeben würde..... Höchste Zeit die für die neueste Version des Investment Banking Lexicon: The post-credit squeeze edition. Köstlich!

UBS to Sell Stakes After $10 Billion in Subprime Writedowns
UBS AG, Europe's largest bank by assets, said it will write down U.S. subprime investments by $10 billion and raise 13 billion francs ($11.5 billion) by selling stakes to investors in Singapore and the Middle East.

UBS expects a loss in the fourth quarter, and may have a loss for 2007, the Zurich-based company said in an e-mailed statement today.

Securities firms and banks had announced about $66 billion of losses and markdowns linked to the collapse of the U.S. subprime mortgage market this year. UBS reported its first loss in almost five years in the third quarter after the subprime contagion led to about $4.66 billion in markdowns on fixed-income securities and leveraged loans.

Besten Dank an Zeitenwende

UBS Press Release & Deutsche Version
UBS strengthens capital base and adjusts valuations
UBS has introduced measures to substantially strengthen its capital position, adding CHF 19.4 billion of BIS Tier 1 capital. These include an issue of CHF 13 billion of new capital. This has been placed with two strategic investors: Government of Singapore Investment Corporation Pte. Ltd. (GIC) ( see GIC Website) with CHF 11 billion, and an undisclosed strategic investor in the Middle East with CHF 2 billion.

> To be honest i´m surprised that Singapore has two vehicles and that GIC has assets over $ 300 billion. I´ve heard so for only from Temasek HoldingsUnocal) in relation with Singapore. It´s very impressive that such a small country with an estimated GDP of $ 140 billion, a population under 5 million and especially without a resource base has managed to accumulate close to $ 500 billion in Assets Singapore/Wikipedia. Chapeau!

> Ich bin ehrlich erstaunt das Singapur zwei staatlich kontrollierte Fonds zur Verfügung hat und das GIC mit über 300 Mrd $ so groß ist. Ich habe bisher im Zusammenhang mit Singapur immer nur den Namen Temasek Holdings gehört. Es ist beeindruckend wie es ein kleines Land mit unter 5 Mio Einwohnern, einen BSP von knappen 140 Mrd $ und vor allem ohne Rohstoffbasis schafft fast 500 Mrd $ in Staatsfonds zu pumpen Singapur/Wikipedia . Chapeau!

At the same time, UBS has revised key input parameters of the models that are used to estimate lifetime default and resulting losses for sub-prime mortgage pools. As a result of these revisions, UBS will write down its US sub-prime holdings by approximately a further USD 10 billion.

After these actions, UBS projects a strong BIS Tier 1 ratio of above 12%. ...

In response to continued deterioration in the US sub-prime mortgage securities market, partly driven by increased homeowner delinquencies but mainly fuelled by worsening market expectations of future developments, UBS has revised the assumptions and inputs used to value US sub-prime mortgage related positions. This will result in further writedowns of around USD 10 billion, primarily on CDO and "super senior"1 holdings. In light of continued deterioration in the sub-prime market, valuations of UBS's remaining sub-prime positions reflect the extreme loss projections implied by the prices achieved in the very limited number of observable market transactions in US sub-prime related securities and indices up to the end of November.

As the basis for its wealth and asset management business, UBS wishes to maintain a very strong capital base under all circumstances. Growth in net new money continues, with inflows in Global Wealth Management & Business Banking totalling about CHF 30 billion in October and November. It will therefore strengthen its capital position by issuing new capital in transactions with strategic investors, by selling treasury shares, and by replacing its 2007 cash dividend with a stock dividend.

> Must hurt to sell shares at fire sale prices that they have bought back for a better use of their capital. In Q2 the stock price was in a range of 70-80 Swiss Francs, today close to 50 Swiss Francs. And in total they are selling 36.4 million shares......... Well done!

> Muß sehr schmerzen die teuer zurückgekauften Aktien jetzt zu Schleuderpreisen zu verscherbeln. Ironischerweise sollten die Rückkäufe seinerzeit ja die effektivere Nutzung des Kapitals ermöglichen. Im 2. Quartal lag der Preis zwischen 70 und 80 Schweizer Franken, heute nahe 50...... Und insgesamt werden knapp über 36 Mio zuvor erworbene Aktien nahe Tiefstkursen vertickert...... Gut gemacht!

Strategic investors subscribe to issue of CHF 13 billion of new capital
UBS has reached agreements with two strategic investors – GIC and one other – to subscribe to an issue of CHF 13 billion of mandatory convertible notes. This is subject to the approval of UBS shareholders at an extraordinary general meeting (EGM) which will take place in mid-February 2008. GIC has committed to subscribe to CHF 11 billion and the other investor to CHF 2 billion. The notes will pay a coupon of 9% until conversion into ordinary shares, which must take place on or before a date approximately two years after issuance. The proceeds of the issue will count as Tier 1 capital for BIS capital adequacy purposes after EGM approval.

Sale of treasury shares
The Board of Directors of UBS has further approved the re-sale of 36.4 million treasury shares previously intended to be cancelled. UBS has received indications of interest in a share issue, is considering these and will place these shares over time. This will increase BIS Tier 1 capital by approximately CHF 2 billion.

Proposed replacement of 2007 cash dividend by stock dividend
The Board of Directors proposes to replace the 2007 cash dividend with a stock dividend, i.e. a bonus issue of new shares. This will boost Tier 1 capital by CHF 4.4 billion, of which approximately CHF 3.3 billion is a reversal of accrued dividend for the first nine months of the year and the balance is dividend that will now not accrue. This is subject to EGM approval.

In total, these three actions, when completed and approved, will strengthen UBS's regulatory Tier 1 capital by approximately CHF 19.4 billion. After completion, and taking into account the expected fourth quarter loss, the firm's BIS Tier 1 capital ratio will improve to above 12% from 10.6% at 30 September 2007.

Marcel Rohner, Group Chief Executive Officer, UBS, said: "Conditions in the US mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities. In the last several months, continued speculation about the ultimate value of our sub-prime holdings – which remains unknowable – has been distracting. In our judgement these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation. Together with the strengthening of our capital base this will allow us to concentrate on sustaining and developing our client businesses.

Information on GIC
GIC is a global investment management company established in 1981 to manage Singapore's foreign reserves. With a network of eight offices in key financial capitals around the world, GIC manages a broad diversified portfolio across countries and asset classes that includes equities, fixed income, foreign exchange, commodities, money markets, alternative investments, private equity, real estate and infrastructure investments.

More insights via FT Alphaville UBS boggles - $10bn of writedowns, $17bn in emergency capital

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Blogger jmf said...

Eat this Paulson..... :-)

S&P calls the death of the SIV

On Friday, S&P cut the credit ratings on the capital notes all of the SIVs it rates, and said it did not expect the asset class to survive.

1:10 AM  
Blogger jmf said...

SocGen to move $4.3 bln of SIV assets on balance sheet

said Monday that it will take the assets of its PACE structured investment vehicle onto its balance sheet due to the current turmoil in the credit markets. PACE is the only structured investment vehicle that the bank sponsors and had assets of $4.3 billion as of Nov. 30. Shares in the group fell 0.9% in early Paris trading

> It seems that only Citigroup isn´t able to shoulder the SIV exposure....

1:11 AM  
Blogger jmf said...

FT Alphaville strikes again...


An investment banking lexicon: The post-credit squeeze edition

Investment bank-speak is a universal language. From maximising shareholder value to full and fair offers, bankers are well versed in the art of keeping their clients happy.

But four months into the credit crisis and their words have taken on a new meaning. Here is an explanation.


Pre-squeeze: Poor cut of beef

Post-squeeze: On the national education curriculum


Pre-squeeze: Please pay back the money (no rush)

Post-squeeze: Please get approval for all expenses above £50


Pre-squeeze: 50 buy-out firms submit first-round bids

Post-squeeze: The Malaysians are looking


Pre-squeeze: Coveted transaction

Post-squeeze: Distressed debt play


Pre-squeeze: $50m for successfully delivering shareholder value

Post-squeeze: $50m for destroying shareholder value


Pre-squeeze: $10bn

Post-squeeze: Z$300,000bn


Pre-squeeze: Growing faster than the competition

Post-squeeze: Not falling quite as quickly as the competition


Pre-squeeze: Goldman launches billion-dollar fund

Post-squeeze: Heathrow queues get longer


Pre-squeeze: 8 x pro forma ebitda

Post-squeeze: 4 x historic earnings


Pre-squeeze: There is a hole in the pension book

Post-squeeze: Due diligence to look diligent


Pre-squeeze: Bollinger, Château Lafite, Nobu catering

Post-squeeze: Glass of Chianti, dry roasted peanuts


Pre-squeeze: Real deals by stretched bankers

Post-squeeze: Stretched deals by virtualbankers


Pre-squeeze: Risky, high-yield play

Post-squeeze: Safe haven


Pre-squeeze: We will take the highest offer

Post-squeeze: Fire sale

1:42 AM  
Anonymous eh said...

How about this one:

Bush suspends capitalism, stocks soar - Markets Live at 11am

Although I think there's been a lot of exaggeration and misunderstanding about what the subprime 'bailout' actually does and does not do...

2:04 AM  
Blogger jmf said...

"Although I think there's been a lot of exaggeration and misunderstanding about what the subprime 'bailout' actually does and does not do..."


This deal won´t help a dime.

But you can see that the mood from Mr. Market is bullish short term when this kind of lousy PR is sending shares higher.

Also nice to see that UBS is starting a relieve rally on the good news......


2:15 AM  
Anonymous eh said...

UBS rebounds after writedown, boosts Europe shares

2:17 AM  
Blogger jmf said...

Wouldn´t surprise me if we see several banks using this window of golden opportunity to announce write downs...

The same kind of news in early 08 wouldn´t be treated so kindly :-)

2:28 AM  
Blogger jmf said...

CDO update: defaults to increase threefold in 2008

CDO defaults can be expected to rise sharply by early 2008, with up to 100 breaking default triggers, compared with 33 at present.

So says David Yan, Credit Suisse’s head of CDO research. Total Securitization reports Yan’s comments from a discussion at Opal Financial Group’s CDO summit in California.

If a CDO triggers an “event of default” then the most senior noteholders are given the option to liquidate the structure should they so desire. Of the 33 CDOs currently in default, only two have gone into liquidation; Carina and Adams Square I. As FT Alphaville reported last week, in the case of Adams Square, liquidation saw noteholders completely wiped out.

2:36 AM  
Blogger jmf said...

The bulls are back in town…

Lehman’s strategy team, led by Ian Scott, are perma-bulls...

His advice is:

shut your ears to the cacophony of bearish comment and negative newsflow and think longer-term

Depends on what he is calling longer term......

3:28 AM  
Anonymous eh said...

Wall St seen up; investors ignore UBS

Analysts said the capital injection at UBS countered the negative effect of the writedown, adding the market had already discounted big writedowns by banks anyway.

"Market participants fully expect more and more writedowns, and then you have the fact that two large investors have shown faith in UBS," said Steve Previs at Jeffries International.


"No central bank cut will help short-term credit markets -- it's just a matter of perception. The question is who has more money -- The Fed or the banks? The Fed, of course," he said, adding that the Fed needed to make it easier for embattled banks to borrow from it.

Think about the mindset here for a moment...

A central bank has, theoretically, an infinite amount of money - it can create as much money/credit as it wants. The question is, what will it be worth? Banks that show reluctance to "borrow" (ein Witz, vermutlich) may (letztendlich) be showing some good sense in trying to avoid the stigma of going to 'the lender of last resort', which could further cripple their business.


3:34 AM  
Blogger Yogi said...

So what UBS is saying is “Only $10 billion exposure, worst case, honestly. Plus we’ve found some Asian/Middle Eastern bag-holders to bail us out. Nothing to see here folks. Everybody move along”. :)

9:01 AM  
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