 UBS shocked markets and investors when it revealed tens of billions of dollars in previously undisclosed exposure to risky US mortgages, leveraged finance and complex securities, dramatically raising its vulnerability to the credit crisis.
The revelations, which included $US26.6 billion in exposure to US mortgages distinct from subprime loans, sent the bank's shares tumbling to levels not seen since 2004 as investors braced for even more writedowns. UBS stock has lost more than half its value since last June after it took $US18.1 billion of writedowns in the second half of 2007 alone on subprime-related exposures. UBS also unveiled further exposures of $US11.4 billion in leveraged finance - loans made to fund buyouts of companies - and of $US11.2 billion to a complex securitisation product called a US reference-linked note programme. UBS said the biggest chunk of the newly unveiled exposure, announced together with full-year and fourth-quarter results, was to so-called Alt-A mortgages, which are of higher quality than subprime loans but also considered risky. UBS's existing exposure to US subprime mortgages at the end of December stood at a net $US27.594 billion, making it one of the biggest casualties of the global credit crunch worldwide. Chief Executive Marcel Rohner said he could not say if UBS would return to profit in the first quarter, after posting a fourth-quarter loss roughly in line with guidance given at the time of the bank's profit warning last month. UBS Chief Financial Officer Marco Suter also said Singapore and an unnamed Middle East investor, who both agreed in December to provide a 13 billion Swiss franc capital injection, were still committed to subscribing to a mandatory convertible note. Rumours that Singapore was having second thoughts about the convertible issue have swirled in recent days and analysts say UBS may have to resort to a rights issue to bolster its balance sheet if more losses pile up. Suter downplayed talk that the Swiss bank would seek to raise capital yet again, saying it could improve regulatory capital ratios without having to raise equity, by cutting risk-weighted assets or by issuing hybrid debt instruments. Shareholders will be asked to approve the capital increase at an extraordinary shareholders' meeting on February 27.
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