UBS Writedown Research Roundup
The markets today responded positively to the UBS announcement that it would take a US $10 billion write-down, while accepting a cash infusion from the Government of Singapore Investment Corporation and an unnamed Middle Eastern investor. The Singapore investment, worth 9% of the Swiss bank, is similar to the injection of funds by the ADIA into Citigroup a few weeks earlier.
After falling initially, UBS stock closed the day up 1.4%, with the market apparently feeling that known losses are better than unknown potential losses. According to CreditSights:
Although the $10 bln announced today is huge, and the need to raise capital is embarrassing for a bank that has prided itself on having stronger solvency measures than its peers, the market will regard this as drawing a line under the sub-prime problems.
CreditSights analyst Simon Adamson remained skeptical, though, adding:
Given the previously reported figures, and UBS’s puzzling reluctance to admit to the size of the problem until today, we are not entirely convinced, but this was the main hidden loss among European banks, and the willingness of GIC to invest is a strong vote of confidence.
Meanwhile, Fitch downgraded UBS’ long-term debt today to ‘AA’, with outlooks remaining negative. “The additional write-downs announced by UBS today are significantly higher than previous guidance from the group and reflect ongoing valuation challenges in a still difficult market environment,” says Gordon Scott, Managing Director in Fitch’s Financial Institutions group. “The measures announced today to bolster the group’s capital base are viewed positively by Fitch and have prevented a more aggressive rating action.”
Following the announcement, S&P affirmed its ‘AA/A-1+’ counterparty credit ratings on UBS stating:
Today’s announcement represents a decisive step by UBS to address its significant subprime-related exposure. Upon completion, the net impact of the capital raising and fourth quarter writedowns will be to increase the BIS Tier 1 ratio to above 12%, from 10.6% at Sept. 30, 2007.
S&P had previously lowered its rating from AA+ to AA on October 1.
Citigroup analyst Jeremy Sigee remains neutral on UBS, noting that:
Despite the size of the capital increase, the risk of additional write-downs remains, and the premium at which UBS trades post the
capital increase suggests the upside in the ADRs is limited.
At the same time, JP Morgan analyst Kian Abouhossein remains bullish, stating that UBS remains its top pick in the European investment banking sector, ahead of both Credit Suisse Group and Deutsche Bank.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.