Tuesday, April 1, 2008

UBS to Announce More Write-Downs

Having already recorded $18 billion in write-downs tied to sub-prime mortgage securities, UBS AG is expected to announce, as early as today, further write-downs and their plans for raising more capital to cushion their increasing losses related to their sub-prime investments.

UBS could raise capital after shareholders in February approved a plan to raise 13 billion Swiss francs ($13.09 billion) from investors in Asia and the Middle East. Swiss pension fund Profund has proposed that UBS put a separate 10 billion Swiss franc capital increase to a shareholder vote. Profund has said it believes UBS needs the capital to sustain the write-downs.

According to analysts, before its annual shareholders meeting on April 23rd, UBS is likely to tell investors that it has sustained $15 billion more in write-downs. Lehman Brothers Inc. has forecast that those write-downs will include at least $13.8 billion in markdowns tied to sub-prime securities and securities backed by Alt-A loans. Last month, Morgan Stanley estimated that the write-downs could total as much as $25 billion.

In addition, analysts expect UBS will take hits tied to leveraged loans and commercial real estate. This increase in bad debts means UBS might separate the bank’s bad assets from its other operating businesses through the creation of a so-called bad bank.

UBS’s problems stem from their ambitious push the last two years to compete in the business of underwriting and trading complex securities underpinned by risky loans to U.S. homeowners.

More write-downs could lead to doubts over whether UBS has been sufficiently aggressive in marking down the value of its mortgage securities, which include holdings tied to debt pools known as collateralized-debt obligations.

Of course, UBS is not alone. More write-downs across the banking system are expected. Last month, Standard & Poor estimated that financial firms have recorded $150 billion in mortgage-related losses and that the total could reach $285 billion.

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