Friday June 26, 06:01 PM
UBS seeks fresh cash, warns of second quarter loss
ZURICH (AFP) - Switzerland's largest bank UBS (Virt-X: UBSN.VX - news) said on Friday it expected to post another loss in the second quarter and announced plans to raise some 3.8 billion Swiss francs in fresh capital to bolster confidence.
About 293 million new shares will be placed with institutional investors at 13 Swiss francs (8.59 euros, 11.89 dollars) each, raising the equivalent of about 2.5 billion euros or 3.5 billion dollars if fully subscribed.
The share issue will "help reinforce confidence in UBS and the place of Swiss finance," Switzerland's leading bank said in a statement.
The move came just a week after the central bank warned the country's biggest commercial banks that they were still heavily exposed to the global slump and should bolster their capital base.
Earlier this month, ratings agency Moody's Investor Services raised the prospect of a potential downgrade for UBS' long-term debt and deposit ratings, warning of "considerable challenges" in its Investment Banking and Wealth Management divisions.
UBS said it continued to lose funds from its three wealth and asset management divisions in the current quarter, with "negative" net new money.
Based on its performance over the past two months, UBS also expects to make a net loss in its second-quarter results, which are to be released on August 4.
It said "the majority of the expected loss" would arise mostly from loan writedowns and restructuring costs already announced.
UBS shares fell 5.4 percent to 13.22 Swiss francs at the close of trading on the Swiss stock exchange. The overall Swiss Market Index rose 0.3 percent.
The government last year injected six billion francs, then equivalent to 3.9 billion euros or 5.2 billion dollars, into UBS as part of a massive state aid package to stabilise the bank after it suffered huge losses on its exposure to the US subprime home loan market collapse.
The bank's first quarter loss reached about two billion francs (1.32 billion euros, 1.75 billion dollars), prompting it to cut another 8,700 jobs on top of some 11,000 shed since October 2007.
Despite the forecast second quarter loss, UBS said operating results should improve, mostly because of better market conditions for the investment bank and a reduction in writedowns and losses on high risk positions taken previously.
UBS said it was making the share placement now in order to take advantage of market opportunities. Stock markets have risen sharply in the past few months on the view the worst of the global slump is over but many now think the gains may have been overdone.
Under current conditions, the bank is aiming to raise its ratio of tier 1 core capital to nearly 11.9 percent on a pro-forma basis from 10.5 percent as of March 31.
Tier 1 core capital -- a key measure of financial health -- should in any case rise above 11.9 percent due to efforts to reduce risk-weighted assets, according to UBS.
The ratio, however, is well below the 14 percent threshold preferred by the Swiss financial supervisory authority (Finma) and the 14.1 percent reported by second-ranked Credit Suisse.
UBS needed to act "because of the high capitalisation of Credit Suisse and the increase in capital of American banks," said analyst Tobias Brütsch of bank Vontobel (VONN.SW - news) .
While the capital hike would help restore confidence, the net fund outflows were "clearly disappointing," he added.
Andreas Venditti of Zurcherkantonalbank (ZKB) said "UBS appears to be expecting a deterioration in market conditions."
The Swiss government welcomed the UBS share placement and pledged to limit its disengagement from the bank before August 4 -- when UBS announces second quarter results.
Since June 9, the Swiss government has been able to convert its mandatory convertible notes -- part of last year's support package -- in UBS into shares.
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