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UBS adds $10b in subprime losses

UBS said it plans to raise billions through share sales to Singapore and a Middle East investor. UBS said it plans to raise billions through share sales to Singapore and a Middle East investor. (Alessia Pierdomenico/Reuters)
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Associated Press / December 11, 2007

ZURICH - UBS AG will write off a further $10 billion in losses from the US subprime lending market, the Swiss bank said yesterday, and raise billions in capital through share sales to Singapore and an unidentified investor in the Middle East.

UBS said it will post a loss for the fourth quarter and may now record a loss for the full year as well. That makes $12.6 billion in write-downs from the subprime crisis by UBS this year.

The Government of Singapore Investment Corp., a sovereign-wealth fund, is investing $9.75 billion, while an undisclosed strategic investor in the Middle East is contributing $1.77 billion.

As recently as the middle of November, UBS had predicted a profit for the fourth quarter despite ongoing speculation about its subprime holdings.

"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," chief executive Marcel Rohner said in a statement.

"In our judgment these write-downs will create maximum clarity on this issue and will have the effect of substantially eliminating speculation," he said.

In October the bank downgraded the value of some assets by more than $3.4 billion because of exposure to bad US mortgages. The write-down led to losses of $712 million in the period ended Sept. 30.

Western banks have lost billions on exposure to US subprime loans. Cash-rich sovereign funds have been stepping in to help them boost capital and claim a chunk of company ownership.

Last month the Abu Dhabi Investment Authority, the sovereign investment fund of the United Arab Emirates, acquired a 4.9 percent stake in Citigroup Inc., the largest US bank, for $7.5 billion.

Tony Tan, deputy chairman of Government of Singapore Investment, said the 9 percent stake does not mean Singapore is seeking control of the Swiss bank.

"GIC is now the single largest investor in UBS and this is the largest investment GIC has made in any company," Tan said at a news conference in Singapore. "We did not make it a condition that our investment should have a representation [on UBS's board.] We have no desire to control the business of the bank."

It was the first time the publicity-shy GIC, which manages Singapore's foreign reserves, has revealed a major investment.

UBS said it brought in about $26.6 billion in new money from clients in October and November. Ensuring a strong capital base will allow the bank to continue to make acquisitions to further expand its wealth-management business, when such opportunities arise, UBS chairman Marcel Ospel said during a conference call.

"Our losses in the US mortgage securities market are substantial, but could have been absorbed by our earnings and capital base," Ospel said in a statement.

But analysts Matthew Clark and Vasco Moreono of Keefe, Bruyette & Woods Ltd. said "the write-downs and capital raising represent a dramatic U-turn from guidance given by chief financial officer Marco Suter just three weeks ago."

The fact that the capital-raising outweighs the write-down makes it appear that UBS is trying to draw a line under its subprime woes, Clark and Moreono said.

Analysts say it's difficult to determine whether the plan announced by President Bush last week to stem housing foreclosures would have an impact on banks. The administration said for qualified borrowers, it was extending for five years some low introductory loan rates on subprime mortgages.

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