By Christine Seib
February 15, 2008
SourceSwitzerland's biggest bank yesterday revealed a surprise $26.6 billion (£13.4 billion) of additional exposure to American mortgages, after admitting that losses on US sub-prime loans had pushed it into a SwFr4.4 billion (£2 billion) loss in 2007.
Marcel Rohner, chief executive of UBS, sent shares in the bank sinking by more than 8 per cent to close at SwFr37.46 each when he refused to say whether UBS would return to profit in the first quarter of 2008. Mr Rohner described last year as “one of the most difficult in our history”. He added: “UBS expects 2008 to be another difficult year”.
The bank's plunge into the red is expected to increase calls for chairman Marcel Ospel's resignation. Sources said that the bank was under pressure to announce a succession plan at its annual meeting in April.
The bank revealed $4.4 billion of sub-prime related writedowns in the third quarter of last year and yesterday amended its fourth-quarter charge to $13.7 billion, down slightly from a previous estimate of $14 billion. The writedown resulted in a SwFr12.4 billion loss in the three months to December 31, compared with a profit of SwFr3.4 billion in 2006. Of the $13.7 billion writedown, almost $11 billion comes from investments in assets backed by sub-prime mortgages.
The bank had already declared $27.6 billion of exposure to US property, including investments in residential mortgage-backed securities and collateralised debt obligations. However it yesterday revealed a previously unknown $26.6 billion of additional exposure to so-called Alt-A American mortgages. These are mortgages sold to people without credit histories and are considered less risky than sub-prime loans but riskier than prime loans.
It has a further $2.9 billion of exposure to the troubled monoline insurers, which contributed $871 million to the $13.7 billion writedown. Analysts at Keefe, Bruyette & Woods predicted that investors' concerns about these outstanding exposures would continue to depress the bank's share price. The analysts said: “We suspect concerns over the group's exposures and, more importantly, the overall franchise will persist until disproven”.
The bank's writedowns have come from UBS's fixed income, currencies and commodities (FICC) business, leading to a SwFr15.5 billion pre-tax loss from the investment banking division in 2007.
Institutional investors also pulled SwFr16.2 billion from the bank's global asset management business after dissatisfaction on the returns made by some of the bank's equities funds. The bank appointed a new head of global equities, Nick Melhuish, in November in an attempt to stem the outflow.
But Marco Suter, the chief financial officer, reassured shareholders that the two investors who pledged to pay about SwFr51 per share in a capital raising were not going to pull out of the deal. GIC, the sovereign wealth fund of the Singapore Government, and a unnamed Middle Eastern investor promised in December to subscribe to an issue of SwFr13 billion of mandatory convertible notes, with the cash to be used to strengthen UBS's tier 1 capital.
Shareholders will vote on the capital raising at an egm this month.