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UBS meltdown continues: Shell CFO Peter Voser is a director of the crisis hit Swiss bank

Times Online
May 27, 2008

UBS seeks SwFr16 billion amid fears of further losses

UBS is expecting more losses from its property exposure as the bank’s troubles widen beyond the United States to mortgage business in other countries.

The warning from the Swiss bank, which was hit hard by the sub-prime mortgage crisis, emerged in a prospectus for a SwFr16 billion (£7.8 billion) share issue, published late on Friday.

UBS shares yesterday suffered their biggest fall in more than two months of trading, sliding nearly SwFr1.74, or 6 per cent, to SwFr28.2 in Zurich.

The group gave warning that it holds positions related to property markets in countries other than the United States on “which it could suffer losses”.

In its prospectus, which was posted to investors on Friday, it said: “These include exposures to nonUS residential and commercial real estate and mortgages. UBS has recorded losses on such positions in 2007 and first quarter 2008 but markdowns and losses could increase in the future.”

UBS said last week that it would sell $22 billion (£11 billion) of sub-prime and United States residential mortgage-backed securities to BlackRock for $15 billion, with UBS providing the fund manager an $11.25 billion loan in the process.

UBS is Europe’s largest sub-prime casualty so far, having written down about $37 billion of assets hit by the lending crisis in the United States. UBS shares have dropped 52 per cent in New York this year, cutting its market value to $61.1 billion.

The bank still has more than $45 billion in United States mortgage-related assets, $8.6 billion in leveraged finance commitments and $10.4 billion in United States student loans on its books.

UBS shareholders can start subscribing for shares in the rights offer, which allows them to purchase seven new shares for every 20 held at SwFr21 each. The bank plans to sell 760.3 million new shares, which are due to start trading on June 13, to raise net proceeds of about SwFr15.5 billion.

The rights, which are fully underwritten, will be offered to existing shareholders at a discount of more than 30 per cent.

The bank has gone to its existing owners for fresh equity as an increasing number of its European rivals are trying to repair dented balance sheets.

Royal Bank of Scotland is asking for £12 billion, HBOS is seeking £4 billion and Bradford & Bingley wants to raise funds of up to £300 million from its shareholders.

When completed, the UBS rights issue will be the fourth-largest in European corporate history.

The banking group said this month that about 5,500 of the workforce would have to be laid off.

UBS already raised SwFr13 billion in March from the Government of Singapore Investment Corporation and an unidentified Middle Eastern investor.

Further concerns have also been highlighted at UBS outside the sub-prime lending issue. The bank added in the “risk factors” section of its prospectus that its exposure to auction-rate securities, used mostly in municipal financing, increased to SwFr11 billion, from SwFr6 billion during the first quarter.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4009907.ece

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