UBS Shares Sink Anew on Writedown Fears
ZURICH (Reuters) - Swiss bank UBS AG (UBSN.VX) came under renewed pressure on Thursday due to speculation it had begun selling off risky mortgages at a deep discount and that its subprime losses were rapidly mounting.
Investors fretted that UBS may face huge losses if it offloaded stressed investments at fire-sale prices, and at the same time, worried about the uncertainty of future losses if it didn't.
Bond manager Pimco (ALVG.DE) rejected reports it had bought UBS' entire 26.6 billion Swiss franc ($25.7 billion) portfolio of Alt-A investments, U.S. mortgages ranked between prime and subprime, according to a CNBC report citing an unnamed executive.
But investors still took the news to mean that UBS, the world's largest wealth manager and the European bank hardest hit by the subprime crisis, was grappling with its massive portfolio of risky assets, valued at around $90 billion.
"UBS is slowly getting a handle on its risk and it seems to be working hard to bring that down and return to its strengths, which is more old fashioned investment banking and wealth management. But this going to take time," said analyst Tom Jenkins at bank RBS.
Analysts also see the ailing bank making further writedowns on a 400 billion franc portfolio of repurchase agreements as it rushes to cut its exposure to the capital markets in general and to risky assets in particular.
While reducing the Alt-A assets would free UBS of some uncertainty that has dogged its share price, the cost could be heavy, entailing additional losses. By contrast, any writedown on its repo portfolio may raise fears of more losses to come.
"Managing down a 2.3 trillion Swiss franc mortgage-heavy balance sheet in a turning credit cycle will be costly and risky and could overhang the earnings power of business," Morgan Stanley said in a note to clients.
UBS has said it is well positioned to withstand further losses after raising 19 billion francs in emergency capital. Analysts largely agree that the bank could take more big hits without needing more emergency cash from shareholders or new investors.
But fears that the bank has become a hostage to fortune continue to weigh on its shares.
"UBS may choose to sell down its workout book of mortgages, taking larger upfront losses to reduce uncertainty on capital ratios," Morgan Stanley said.
UBS and Pimco declined to comment.
NEW LOWS
UBS shares fell over 4 percent to a new five-year low of 30.82 francs compared with a 2.9 percent fall in the DJ Stoxx European bank index .SX7P. UBS shares have shed over 42 percent in the past three months alone -- far more than any other major European bank.
Meanwhile, many analysts have increased their estimates of how much UBS stands to lose to the U.S. credit crisis.
Analysts at J.P. Morgan said they now expected UBS to write down 18.5 billion francs in total assets in the first quarter, compared with their previous estimate for 15 billion, as a result of an Alt-A sale.
Merrill Lynch analysts said potential further writedowns at UBS could total $21 billion.
Analysts at Morgan Stanley said they had raised their worst-case potential loss estimates for UBS to $15-25 billion from previous estimates of $10-15 billion as a result of any Alt-A sale and repo repricing.
Analysts at bank Exane BNP Paribas also cautioned about potential damage to the bank's reputation.
"Worries on the eventual damage stemming from the bank's fall from the once-world-class wealth management franchise as well as uncertainty on the actual value of the toxic securities will inevitably continue to weigh on the stock price," Exane BNP Paribas said in a note to clients.
Speculation is rising that the group may seek a radical restructuring that could include the sale of its U.S. wealth management activities or the separate bourse listing of its flagship international private bank.
(Editing by Will Waterman and Erica Billingham)
