Sunday, July 6, 2008
SFBC Wants UBS, Credit Suisse To Raise $68 Billion Capital
The Swiss Federal Banking Commission (SFBC) wants UBS and Credit Suisse to raise an additional $68.3 billion in capital (70 billion Swiss francs - 40 for UBS, and 30 for Credit Suisse) to avoid problems due to the banks' subprime exposure, expected write-downs and losses. AFP reports a quote from a Swiss parliamentarian Hans Kaufmann in the Swiss newspaper Sontagg to this effect, and a confirmation of the same from Banking commission spokesman Alain Bichsel that a definite provision would be put out to UBS and Credit Suisse in the autumn.
UBS expects a Tier 1 ratio of approximately 11.5% at the end of the quarter. The minimum Tier 1 requirement for European banks, which signifies the bank's ability to absorb losses, is 4%. In a recent statement, UBS announced that it won't be needing or raising fresh capital. But this new requirement from SFBC for UBS to raise an additional 40 billion Swiss francs makes the UBS statement moot.
In their estimates for the 2nd quarter, the results for which will be released on August 12, UBS expects to be at or slightly below break-even for the quarter ended June 30, inspite of more subprime-mortgage write-downs and losses due to credit valuation adjustments on monoline insurance exposures.
UBS has already announced subprime write-downs worth $38 billion and has raised fresh capital amounting to $27.61 billion, including the sale of $15 billion in discounted assets to Blackrock Inc., and multiple capital infusions totalling $12 billion from a Sovereign Wealth Fund and an undisclosed investor. The reduced exposure from the asset sale to Blackrock is one of the reasons, along with some gains on its hedging positions, and a 3 billion franc tax benefit related to its previous subprime losses, that UBS has been able to balance the books for the quarter.
As for the question of from where UBS is expected to raise the fresh capital, the two likely possibilities include a further dilution of equity by accepting more funds from foreign investors, and further sales of assets. This will no doubt cause some heart-burn for UBS shareholders in the next quarter, but then, raising fresh capital is the least of their problems, as far as share value and performance is concerned.
The main issue, still bubbling and threatening more blowback for UBS, is the tax evasion investigation of its Wealth Management Division. UBS has been losing clients steadily for the past month or two, and its share price has been steadily dropping (down about $34 in the last one year), mainly due to the twin effects of the erosion of its investments in U.S. mortgage-backed securities, and fear about UBS having to reveal its books and client list to federal prosecutors from the U.S., Germany and other countries investigating the scandal.
Meanwhile, there's more bad news for UBS on the legal front. A High Court in London rejected its counter-suit against Germany's HSH Nordbank, which is suing UBS for $275 million over losses from mortgage securities. HSH Nordbank accuses UBS of fradulent actions related to $500 million in CDOs.
UBS was saved this quarter by the tax-man, and they're talking to tax authorities world-wide, to try and squeeze some more tax benefits related to their losses. Remains to be seen if they can be saved next time around.
UBS expects a Tier 1 ratio of approximately 11.5% at the end of the quarter. The minimum Tier 1 requirement for European banks, which signifies the bank's ability to absorb losses, is 4%. In a recent statement, UBS announced that it won't be needing or raising fresh capital. But this new requirement from SFBC for UBS to raise an additional 40 billion Swiss francs makes the UBS statement moot.
In their estimates for the 2nd quarter, the results for which will be released on August 12, UBS expects to be at or slightly below break-even for the quarter ended June 30, inspite of more subprime-mortgage write-downs and losses due to credit valuation adjustments on monoline insurance exposures.
UBS has already announced subprime write-downs worth $38 billion and has raised fresh capital amounting to $27.61 billion, including the sale of $15 billion in discounted assets to Blackrock Inc., and multiple capital infusions totalling $12 billion from a Sovereign Wealth Fund and an undisclosed investor. The reduced exposure from the asset sale to Blackrock is one of the reasons, along with some gains on its hedging positions, and a 3 billion franc tax benefit related to its previous subprime losses, that UBS has been able to balance the books for the quarter.
As for the question of from where UBS is expected to raise the fresh capital, the two likely possibilities include a further dilution of equity by accepting more funds from foreign investors, and further sales of assets. This will no doubt cause some heart-burn for UBS shareholders in the next quarter, but then, raising fresh capital is the least of their problems, as far as share value and performance is concerned.
The main issue, still bubbling and threatening more blowback for UBS, is the tax evasion investigation of its Wealth Management Division. UBS has been losing clients steadily for the past month or two, and its share price has been steadily dropping (down about $34 in the last one year), mainly due to the twin effects of the erosion of its investments in U.S. mortgage-backed securities, and fear about UBS having to reveal its books and client list to federal prosecutors from the U.S., Germany and other countries investigating the scandal.
Meanwhile, there's more bad news for UBS on the legal front. A High Court in London rejected its counter-suit against Germany's HSH Nordbank, which is suing UBS for $275 million over losses from mortgage securities. HSH Nordbank accuses UBS of fradulent actions related to $500 million in CDOs.
UBS was saved this quarter by the tax-man, and they're talking to tax authorities world-wide, to try and squeeze some more tax benefits related to their losses. Remains to be seen if they can be saved next time around.
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