High-yield/macroeconomics (fka YIELD)

[Preciouslife1]

UBS Comes Clean
Parmy Olson, 12.10.07, 6:45 AM ET

http://www.forbes.com/2007/12/10/ubs-subprime-writedown-markets-equity-cx_po_1210markets05.html?feed=rss_news

LONDON - First a pinch, now the punch. UBS has announced a $10 billion write-down linked to the fall in the value of its assets backed by American subprime mortgages, after having downgraded its assets by just $3.4 billion in October.

The Swiss bank now says it'll record a loss for the fourth quarter, and it could also post a net loss attributable to shareholders for the year 2007.

And yet--shares in UBS (nyse: UBS - news - people ) rallied. They bank was up 1.8%, or 1.05 Swiss francs (93 cents), at 58.25 Swiss francs ($51.68), on Monday morning in Zurich.

Most investors had already been expecting a relatively large write-down, based on the knowledge that UBS has been heavily involved in the issuing of collateralized debt obligations, or securities that have subprime debt packaged into them. Many had been fearing losses that would be even larger than those announced Monday.

"People are happier with the news being out than in," said analyst John Raymond of CreditSights, which had predicted that UBS would be the worst-hit bank in Europe because of the subprime crisis and would post a loss of around $9.3 billion. "It's the old thing where the fact is better than the rumor."

UBS Chief Executive Marcel Rohner said the write-downs would create "maximum clarity" on the issue and would have the effect of "substantially eliminating speculation."

"In the last several months, continued speculation about the ultimate value of our subprime holdings--which remains unknowable--has been distracting," he added in a press release. Shares in UBS have fallen 13% since August 14, when the financial market turmoil related to the credit crunch first started.

The write-down was also mitigated by Swiss bank's announcement that it had found a helping hand in the form of an $11.5 billion loan from GIC, a Singaporean sovereign wealth fund, and a $1.8 billion loan from an undisclosed strategic investor in the Middle East, reportedly the government of Oman.

"From a credit point of view it's a new injection of capital, and you've got to welcome that," said Raymond. "You want to make sure that the owners are sound and committed for long term." In that sense, GIC was a good creditor, he added.

Chances are that other big European investment banks will also soon be coming out of the woodwork to announce their write-downs, though none will likely be as large as UBS.

Raymond predicted that of the French banks, Societe Generale (other-otc: SCGLY - news - people ) would post a $3.2 billion write-down, Credit Agricole (other-otc: CRARF - news - people ) a $1.7 billion charge and Credit Suisse (nyse: CS - news - people ) a $1.4 billlion write-down.

BNP Paribas (other-otc: BNPQY - news - people ), which famously froze three of its investment funds back in August to spur the European market turbulence, would post a relatively small write-down since its CDO business is not significant.

Deutsche Bank (nyse: DB - news - people ) would probably post a write-down of slightly less than $4 billion.

On Monday, Lloyds TSB (nyse: LYG - news - people ), the U.K.'s fifth-biggest lender, said that the credit crunch had so far cost it a relatively small £200 million ($408 million). The announcement was welcomed by analysts and investors, who sent Lloyds' shares up 2.6%, or 12.5 pence (26 cents), to 500.5 pence ($10.22), on Monday morning in London.