* Graeme Wearden
* guardian.co.uk,
* Tuesday April 1 2008
* Article history
This article was first published on guardian.co.uk on Tuesday April 01 2008. It was last updated at 18:18 on April 01 2008.
UBS, already one of the biggest victims of the US sub-prime crisis, has been forced to write off another $19bn (£9.6bn) from the value of its mortgage assets, forcing its under-fire chairman to step down.
The Swiss bank said today it was seeking fresh capital through a rights issue, after admitting that its losses from so-called "toxic debts" -- securities underpinned by US home loans whose value has plunged in recent months - had doubled. Chairman Marcel Ospel, who had previously fought off calls for his resignation, will step down at its AGM later this month.
The latest write-down was caused by another drop in the value of the company's holdings in securities backed by US mortgages, and doubles its overall sub-prime losses. It pushed the company into a loss of SFr12bn (£6bn) for the first quarter of 2008.
The write-down is larger than City experts had expected, and takes UBS's total sub-prime losses to more than £18bn. It sparked optimism that the turmoil in the financial markets may finally be approaching a turning point, as banks had previously been criticised for not admitting the full scale of the damage.
UBS's shares, which have fallen 44% this year, jumped more than 12% today. The news also lifted banking stocks in London, where they dominated the list of biggest risers on the FTSE 100. Alliance & Leicester gained 6.5%, RBS was up 7%, Barclays was up 5.9% and HBOS 7.9%.
UBS said it would issue new shares in an attempt to raise Sfr15bn, and is also setting up a new unit to hold "certain currently illiquid US real estate assets".
"With these measures we have created the basis to weather one of the most difficult periods in the history of the industry," said Marcel Rohner, chief executive.
Speaking on a conference call, Ospel said he took the decision to resign last night.
UBS's admission was swiftly followed by a $3.9bn write-down from Deutsche Bank today, and the two announcements appeared to give investors confidence that the financial sector is finally addressing the full extent of its sub-prime losses.
Martin Slaney, head of derivatives at GFT Global Markets, said the banking sector share rises could show that the bear market is reaching a bottom.
"Investors seem to be saying that the worst is over. This is a very significant move for the markets – if it is sustained," said Slaney.
"It appears that the rights issue and managerial restructuring announced along side the write-downs by UBS will keep their major shareholders content for now," he added.
The collapse of the US sub-prime market has prompted a swathe of multibillion pound write-downs as the banks found themselves holding assets for which there was no longer any demand. Last year, UBS made its first annual loss ever after posting write-downs of over £9.2bn.
From Times Online
April 1, 2008
Patrick Hosking, Banking and Finance Editor
UBS chairman Marcel Ospel fell on his sword this morning as the Swiss banking giant announced a humiliating SwFr15 billion (£7.57 billion) rights issue to shore up its crumbling balance sheet.
The bank revealed that it had lost a further $19 billion (£9.6 billion) in US real estate and related structured credit positions, bringing the total damage from the US sub-prime implosion to about $37 billion.
The fresh injection of capital is fully underwritten by J P Morgan, Morgan Stanley, BNP Paribas and Goldman Sachs and follows a SwFr13 billion capital injection only four months ago from the Singaporean Government fund GIC and a mystery Middle East investor.
It also emerged today that Lehman Brothers raised $4 billion through issuing convertible shares in an attempt to shore up confidence in the investment bank after its shares crashed by 48 per cent on March 17 on speculation it would follow Bear Stearns into collapse.
Peter Kurer, UBS's inhouse general counsel, was named as successor to Mr Ospel, who has been a towering figure in European banking for more than a decade.
"I have always stated that I ultimately take responsibility for the bank's situation," he said this morning.
After the fresh sub-prime losses, UBS posted an estimated first-quarter net loss of SwFr12 billion.
Heavy job losses at UBS in London, a key part of the investment banking arm, look inevitable.
“Clearly the industry is in a very difficult environment and we have to review the capacity with which we operate in this environment,” said UBS chief executive Marcel Rohner. “We will expect to be more specific with respect to all these measures in due course over the next weeks to come.”
The new rights issue represents a major dilution of existing shareholders. UBS plans to boost its share capital from the current SwFr207 million by up to SwFr125 million, an increase of up to 60 per cent. Details on price have yet to be decided.
Sergio Marchionne, the UBS vice chairman and head of Fiat, paid tribute to Mr Ospel: "The events since the summer of 2007 have affected the bank to an unexpected degree and have proved a great challenge for management and the board of directors. Marcel Ospel resolutely led the bank through these difficult times and made a decisive contribution to solving its problems."
Shares in UBS rose this morning as investors welcomed the departure of Mr Ospel and speculated that the series of write-downs by the bank on US subprime and structured credit must now be over. The shares were marked SwFr2.94 higher to SwFr31.80, a 10 per cent increase.
UBS also announced plans to ring-fence its remaining toxic assets in a portfoilio work-out unit: This would initially be wholly owned by UBS but the plan is to reduce the bank's exposure to it, whilst avoiding a fire sale of the assets at severely distressed prices
Mr Rohner, who was himself elevated to chief executive last July after the ousting of Peter Wuffli, said that UBS was weathering one of the most difficult periods in the history of banking.
"I believe this capital increase and the creation of a separate vehicle to separate problem assets from the remainder of the business will allow us to return to sustainable value creation over time."
UBS said that first quarter performance in most other parts of the bank was "acceptable".
UBS chairman Marcel Ospel fell on his sword this morning as the Swiss banking giant announced a humiliating SwFr15 billion (£7.57 billion) rights issue to shore up its crumbling balance sheet.
The bank revealed that it had lost a further $19 billion (£9.6 billion) in US real estate and related structured credit positions, bringing the total damage from the US sub-prime implosion to about $37 billion.
The fresh injection of capital is fully underwritten by J P Morgan, Morgan Stanley, BNP Paribas and Goldman Sachs and follows a SwFr13 billion capital injection only four months ago from the Singaporean Government fund GIC and a mystery Middle East investor.
It also emerged today that Lehman Brothers raised $4 billion through issuing convertible shares in an attempt to shore up confidence in the investment bank after its shares crashed by 48 per cent on March 17 on speculation it would follow Bear Stearns into collapse.
Peter Kurer, UBS's inhouse general counsel, was named as successor to Mr Ospel, who has been a towering figure in European banking for more than a decade.
"I have always stated that I ultimately take responsibility for the bank's situation," he said this morning.
After the fresh sub-prime losses, UBS posted an estimated first-quarter net loss of SwFr12 billion.
Heavy job losses at UBS in London, a key part of the investment banking arm, look inevitable.
“Clearly the industry is in a very difficult environment and we have to review the capacity with which we operate in this environment,” said UBS chief executive Marcel Rohner. “We will expect to be more specific with respect to all these measures in due course over the next weeks to come.”
The new rights issue represents a major dilution of existing shareholders. UBS plans to boost its share capital from the current SwFr207 million by up to SwFr125 million, an increase of up to 60 per cent. Details on price have yet to be decided.
Sergio Marchionne, the UBS vice chairman and head of Fiat, paid tribute to Mr Ospel: "The events since the summer of 2007 have affected the bank to an unexpected degree and have proved a great challenge for management and the board of directors. Marcel Ospel resolutely led the bank through these difficult times and made a decisive contribution to solving its problems."
Shares in UBS rose this morning as investors welcomed the departure of Mr Ospel and speculated that the series of write-downs by the bank on US subprime and structured credit must now be over. The shares were marked SwFr2.94 higher to SwFr31.80, a 10 per cent increase.
UBS also announced plans to ring-fence its remaining toxic assets in a portfoilio work-out unit: This would initially be wholly owned by UBS but the plan is to reduce the bank's exposure to it, whilst avoiding a fire sale of the assets at severely distressed prices
Mr Rohner, who was himself elevated to chief executive last July after the ousting of Peter Wuffli, said that UBS was weathering one of the most difficult periods in the history of banking.
"I believe this capital increase and the creation of a separate vehicle to separate problem assets from the remainder of the business will allow us to return to sustainable value creation over time."
UBS said that first quarter performance in most other parts of the bank was "acceptable".
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