UBS makes $10bn subprime writedown

UBS revealed a $10 billion write-down and an emergency injection of funds from Singapore and the Middle East, making it the biggest…

UBS revealed a $10 billion write-down and an emergency injection of funds from Singapore and the Middle East, making it the biggest victim of the US subprime crisis to date among major European banks.

Singapore is taking 9 per cent of UBS in a deal that mirrors actions taken by US-based Citigroup. Citi expects to write off between $8 billion and $11 billion and has secured funding from the Abu Dhabi Investment Authority.

"There must be a suspicion that it (UBS) feels a strong capital base is necessary just in case there is need for further write-downs," said Helvea analyst Peter Thorne.

The writedown comes after a 4.2 billion Swiss franc ($3.7 billion) hit that UBS suffered at the end of October, and which was also related to US subprime mortgages - loans made to high-risk and low-income homebuyers who were later caught out by rising interest rates and are now defaulting on payments.

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UBS said it expects a fourth quarter loss, which may even drag it into loss for 2007 as a whole.

The Swiss bank, Europe's fourth largest, also replaced plans for a cash dividend with a stock dividend, and said it would examine its investment bank thoroughly and weed out low-profit divisions.

UBS's shares initially fell almost 3 per cent as investors took fright at the anticipated dilution of their share of earnings. They later recovered on relief that the worst of UBS's subprime woes could be over, and were trading 2.9 per cent higher at 58.90 Swiss francs at 12.25pm.

The Singapore investment gives the Southeast Asian island-state 9 per cent stake of UBS through its Government of Singapore Investment Corporation (GIC), another injection into a top western bank by a sovereign wealth fund along the lines of the Abu Dhabi Investment Authority's purchase of a $7.5 billion stake in Citigroup.

"It's a developing trend. Asian and Middle Eastern sovereign investors are cash rich and have a longer time horizon than the average market investor," said Omar Fall, analyst at ABN AMRO.

A further stake of about 1.5 per cent goes to an unnamed Middle East investor, and the two investments raise 13 billion Swiss franc ($11.5 billion) of fresh capital. Oman's State General Reserve Fund denied suggestions that it was the investor in question.

UBS said it had not ruled out granting board seats to the new investors.