UBS Raises $11.5 Billion; Writes Down Another $10B

UBS AG, scrambling to manage a further $10 billion writedown, announced Monday that two foreign investors will provide a capital infusion worth 13 billion Swiss francs ($11.5 billion). The bank also said it is revising its October 30 forecast of a profit in Q4 to a loss, and might post a loss for full-year 2007. The Government of Singapore Investment Corp. [GIC] is investing 11 billion francs, and an undisclosed strategic investor in the Middle East -- believed to be either Abu Dhabi or the government of Oman -- is putting in two billion francs. GIC's stake in the Swiss bank will come to about 9%. "Our losses in the U.S. mortgage securities market are substantial but could have been absorbed by our earnings and capital base," said UBS Chairman Marcel Ospel. "Nevertheless, it is important to always maintain a notably strong capital position to support the continued growth of our wealth management business, which is the largest generator of value to UBS shareholders."

Monday's $10 billion in writedowns are on CDOs exposed to the U.S. subprime residential mortgage market. "In the last several months, continued speculation about the ultimate value of our subprime holdings -- which remains unknowable -- has been distracting," said CEO Marcel Rohner. "[T]hese writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation." "UBS was quite clever this time to couple some extremely bad news with some good news," said Dieter Winet of Swisscanto Asset Management. "It's positive that capital is placed in firm hands. This will help restore trust in private banking and asset management and help UBS write new business." Shares were down 0.9% in Frankfurt at 4:15 a.m. ET.

Sources: Press release, Wall Street Journal, Reuters I, II, Bloomberg
Additional Reading: UBS: Waiting for the CDO Shoe to Drop

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.