"Fools Day" With The Greatest Fool UBS

I have suspended my temporary time out. It took a little longer than initially planned. Due to time constraints my postings in the future will be lighter than before the break. Thanks for all the kind words and mails during the break.

I think it is a good start to kick off the "Fools Day" with news from the the greatest fool UBS. I suggest to read the Q4 details to understand all the drama in the specific positions.

With still close to $ 30 billion ( even if some positions are hedged ) exposure in Subprime and Alt A i expect further write downs and a break up of UBS during the coming 6 to 12 month....

Ich habe meine zwischenzeitliche Auszeit beendet. Sie hat ein wenig länger als ursrünglich geplant gedauert. Aufgrund von Zeitproblemen wird das Posting zukünftig wohl auch weniger häufig ausfallen. Auf diesem Wege möchte ich mich bei allen für die netten Mails und Kommentare bedanken.

Es gibt wohl kaum einen besseren Weg den 1. April mit Neuigkeiten von der UBS zu eröffnen. Bei den nachfolgenden Summen handelt es sich leider um keinen Aprilscherz. Ich empfehle um das ganze Ausmaß des Debakel zu erfassen sich die einzelnen Positionen aus Q4 "reinzuziehen".

Mit immer noch knapp 30 Mrd $ an Subprime und Alt A Positionen ( selbst wenn einiges gehedged sein sollte ) dürfte die nächste Abschreibung schon in Stein gemeißelt sein. Ich tippe weiterhin das die UBS binnen der nächsten 12 Monate aufgepalten wird.

UBS

For the first quarter 2008 UBS expects to report a net loss attributable to UBS shareholders of approximately CHF 12 billion after losses and writedowns of approximately USD 19 billion on US real estate and related structured credit positions. In the first quarter, UBS substantially reduced its real estate related positions through both valuation adjustments and significant disposals

Over the first quarter, UBS's exposure to US residential sub-prime mortgage related positions declined to approximately USD 15 billion from USD 27.6 billion on 31 December, and the exposure to Alt-A positions was reduced from USD 26.6 billion to approximately USD 16 billion. These developments are the result of asset disposals as well as the effects of further writedowns. Other risk positions were also reduced. Auction rate certificate positions increased from USD 5.9 billion on 31 December to approximately USD 11 billion

UBS

Für das 1. Quartal 2008 erwartet UBS einen den UBS-Aktionären zurechenbaren Reinverlust von ungefähr CHF 12 Milliarden nach Verlusten und Abschreibungen in Höhe von ungefähr USD 19 Milliarden auf Positionen US-Immobilienmarkt und damit zusammenhängenden strukturierten Krediten. Im 1. Quartal reduzierte UBS ihre Positionen im US-Immobilienmarkt in erheblichem Masse. Dies geschah einerseits durch Wertberichtigungen, anderseits durch Veräusserungen.

Im 1. Quartal 2008 hat sich das Engagement von UBS in US Subprime-Hypotheken auf ungefähr USD 15 Milliarden verringert (von USD 27,6 Milliarden am 31. Dezember 2007). Das Engagement in Alt-A-Positionen wurde von USD 26,6 Milliarden auf ungefähr USD 16 Milliarden reduziert. Weitere Risikopositionen konnten ebenfalls verringert werden. Die Positionen in Auction Rate Certificates erhöhten sich von USD 5,9 Milliarden am 31. Dezember 2007 auf ungefähr USD 11 Milliarden

UBS: The writedown and the (analysts') reaction FT Alphaville

The Q1 loss is approximately CHF 12 billion. That includes the CHF 18 billion write-down partly offset by CHF 2 billion of fair value accounting gain on your own debt and CHF 3.8 billion of fair value accounting for the option embedded in the mandatory convertible - or, said another way - the money GIC lost when it bought the UBS mandatory convertible. That last part was unexpected by us, and still seems a bit odd.

UBS’s 1Q08 net profit benefited from a CHF6bn positive accounting gain on revaluation of own debt and the mandatory convertible.

UPDATE: Deutsche Bank sees $3.9 billion mark-downs in Q1

Deutsche Bank said Tuesday that conditions have become significantly more challenging during the last few weeks and it expects first quarter mark-downs of around 2.5 billion euros ($3.9 billion). The mark downs are related to leveraged loans and loan commitments, commercial real estate, and residential mortgage-backed securities (principally Alt-A). Deutsche Bank said that it expects a BIS Tier 1 capital ratio at the end of the first quarter of between 8 and 9%, consistent with the bank's published targets

Compare this with the bragging just a few weeks ago......

Vergleicht das mit der Prahlerei von Ackermann von vor gerade einmal 8 Wochen.....

“In the fourth quarter, we again demonstrated the quality of our risk management. We had no net write-downs related to sub-prime, CDO or RMBS exposures. Those trading businesses in which we reported losses in the third quarter produced a positive result in the fourth quarter. In leveraged finance, where we had significant write-downs in the third quarter, net write-downs in the fourth quarter were less than EUR 50 million.”

SCHADENFREUDE!

What A Difference A Week Made....Credit Suisse Discovers Another $ 2.85 Bilion "Fair Value Reduction"

As one who has listened to the entire conference call from Credit Suisse just one week ago i can assure you that this will spook the markets. Credit Suisse was besides Deutsche Bank and Goldman Sachs viewed as one of the big winners during the turbulence. But there was always doubt that their numbers might be too good to be true...... Credit Suisse is proving that this might be the case..... Should be very bad news for the confidence in the marketplace overall...... I assume the "arrogance" from the Credit Suisse management won´t be as obvious as during the last call...... Stock tanking 7 percent......

Als einer der sich vor einigen Tagen die Telefonkonferenz angehört at bin ich mir sicher das diese Meldung hohe Wellen schlagen wird. Bisher galt die Credit Suisse zusammen mit der Deutsche Bank und Goldman Sachs als einer der Gewinner der Marktturbulenzen. In der Vergangenheit sind immer wieder Zweifel aufgekommen ob "die Zahlen nicht zu gut sind um wahr zu sein" ...... Credit Suisse liefert hier eine Steilvorlage für diese Vermutung......Ich bin mir zudem sicher das die "Arroganz" von Seiten des Managements während der nächsten Telefonkonferenz sicher nicht wieder so ausgeprägt sein wird wie letzte Woche .... Aktie zur Eröffnung 7% tiefer......

Thanks to Randy Galsbergen

Credit Suisse Further to its commitment to provide transparency, Credit Suisse today announced that in connection with the operation of ongoing control processes, it has undertaken an internal review that has resulted in the repricing of certain asset-backed positions in its Structured Credit Trading business within Investment Banking.

The current total fair value reductions of these positions, which reflect significant adverse first quarter 2008 market developments, are estimated at approximately USD 2.85 billion (having an estimated net income impact of approximately USD 1.0 billion).

In the first quarter to date, we estimate we remain profitable after giving effect to these reductions. The final determination of these reductions will depend on further results of our review and continuing market developments. We will also assess whether any portion of these reductions could affect 2007 results. Finally, our internal review, which has identified mismarkings and pricing errors by a small number of traders in certain positions in our Structured Credit Trading business, is continuing.

> Here the Full Year Results from Feb. 12th & Webcast

Qatar was maybe a little bit premature....

Sieht ganz so aus als wenn einige Investoren heute leicht erhöhte Temperatur haben werden.....

Qatar fund buys Credit Suisse stake

The QIA’s move comes after Credit Suisse posted robust fourth-quarter results underscoring its resilience during the credit crisis,......

Chapeau! Deutsche Bank Has Manage To Avoid The Torpedoes

It is not often that i write something positive about banks. But you gotta give Deutsche credit for navigating through this tough environment. And reporting "only" write downs from $ 2.3 billion in 2007 is quite an achievement..... Especially when you look how their Peer Group have done so far......Lets hope that they are not "too good to be true"...... That their guidance is probably way too optimistic and the credit books is still loaded with tons of problems is subject to another post

Es geschieht wirklich nicht oft das ich etwas positives in Sachen Banken zu bloggen habe. Aber ich denke im Falle der Deutschen Bank ist das durchaus angebracht. Wenn man als eine der Top Investmentbanken für das gesamte Jahr 2007 lediglich 2,3 Mrd $ als Abschreibung zu verbuchen hat und das mit den Summen der Peer Group vergleicht erkennt man recht schnell wie gut Ackermann´s Bänker sich geschlagen haben..... Bleibt zu hoffen das die Zahlen nicht "Too Good To Be True" sind.......Das der Ausblick immer noch viel zu optimistisch und das Kreditbuch trotz allem mit Problemen beladen ist soll uns heute nicht weiter beschäftigen....Diese Thematik kommt sicher noch früh genug.....

Deutsche Bank reports net income of EUR 6.5 billion, up 7%, for the year 2007

“In the fourth quarter, we again demonstrated the quality of our risk management. We had no net write-downs related to sub-prime, CDO or RMBS exposures. Those trading businesses in which we reported losses in the third quarter produced a positive result in the fourth quarter. In leveraged finance, where we had significant write-downs in the third quarter, net write-downs in the fourth quarter were less than EUR 50 million.”

Unfortuantely both presentations from the analysts call fail to provide much further details on how they have to manage to avoid the losses.

Leider vermögen es auch die beiden Präsentationen von der Analystenkonferenz nicht mehr Lcht ins dunkel zu bringen wie genau die Deutsche Bank es geschafft hat so gut abzuschneiden.

Presentation CEO

Presentation CFO

UBS: $14 Billion in Mortgage Write Downs

What a mess. Seems their 8 week old forecast was $ 4 billion too low. Lets hope the $ 12 billion capital injection from Singapour & the Middle East at fire sale prices will be still enough after the next forecast is hitting the tape..... I think the image as a rock solid Swiss banking giant is now gone and it will take a very long time to bring the once almost perfect reputation back. I assume that this debacle will also infect the much more important wealth management division. A break up is more than likely....

Was für ein Debakel. Sieht so aus als wenn die 8 Wochen alte Prognose mal eben um satte 40% oder $ 4 Mrd verfehlt worden ist. Bleibt die vage Hoffnung das die 12 Mrd $ Kapitalspritzen aus Singapur und dem mittleren Osten auch noch nach der nächsten Prognose immer noch ausreichend sind....... Der Ruf als solide schweizer Bankenadresse dürfte auf Jahre hinaus vernichtet worden sein. Ich kann mir kaum vorstellen das dieses Disaster ohne Auswirkungen auf die Vermögensverwaltung ( die mit abstand wichtigste Sparte ) bleiben wird. UBS wird wohl in der jetzigen Form die nächsten Jahre kaum überstehen.

FT Alphaville UBS, Europe’s largest bank by assets, reported a record loss after about $14bn of writedowns on assets infected by subprime mortgages in the US, reports Bloomberg on Wednesday.The fourth-quarter net loss of 12.5bn Swiss francs ($11.4bn) will result in a full-year loss of about CHF4.4bn, the Zurich-based bank said in a statement on Wednesday.

UBS posted its first annual loss since the company was created through a merger a decade ago, and the Q4 loss was bigger than the record declines reported earlier this month by Citigroup and Merrill Lynch. The collapse of the US subprime mortgage market has led to more than $130bn of losses and markdowns at securities firms and banks since June, notes Bloomberg.

UBS reported about $12bn of losses directly linked to the subprime market and an additional $2bn for positions related to the US residential market. The company said its Tier 1 capital ratio, a measure of financial strength, was 8.8 per cent as of December 31, reported Bloomberg.

Multiple Fire Sales At UBS After $ 10 Billion Write Down

Looks like the UBS comment from just a few weeks ago in UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case.... that the write down´won´t be big was quite an understatement..... Will be fun to watch how long the term "maximum clarity" will be up to date this time ;-) . I´m pretty sure that the same survey about bonuses for the UBS will bring less "euphoric" results..... It´s about time to learn the new version of the Investment banking lexicon: The post-credit squeeze edition. HILARIOUS!

Sieht ganz so aus als wenn der Kommentar der UBS in UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case.... das die Abschreibungen nicht "wesentlich" sein werden ein wenig untertrieben gewesen ist. Welch Überraschung..... Wird spannend zu sehen sein wie lange die Haltwertzeit der "maximum clarity" in diesem Falle vorhalten wird ;-) . Ich bin mir ziemlich sicher das die gleiche Umfrage zu Bonuszahlungen" für die UBS weniger "euphorische" Vorhersagen hergeben würde..... Höchste Zeit die für die neueste Version des Investment Banking Lexicon: The post-credit squeeze edition. Köstlich!

UBS to Sell Stakes After $10 Billion in Subprime Writedowns
UBS AG, Europe's largest bank by assets, said it will write down U.S. subprime investments by $10 billion and raise 13 billion francs ($11.5 billion) by selling stakes to investors in Singapore and the Middle East.

UBS expects a loss in the fourth quarter, and may have a loss for 2007, the Zurich-based company said in an e-mailed statement today.

Securities firms and banks had announced about $66 billion of losses and markdowns linked to the collapse of the U.S. subprime mortgage market this year. UBS reported its first loss in almost five years in the third quarter after the subprime contagion led to about $4.66 billion in markdowns on fixed-income securities and leveraged loans.

Besten Dank an Zeitenwende

UBS Press Release & Deutsche Version
UBS strengthens capital base and adjusts valuations
UBS has introduced measures to substantially strengthen its capital position, adding CHF 19.4 billion of BIS Tier 1 capital. These include an issue of CHF 13 billion of new capital. This has been placed with two strategic investors: Government of Singapore Investment Corporation Pte. Ltd. (GIC) ( see GIC Website) with CHF 11 billion, and an undisclosed strategic investor in the Middle East with CHF 2 billion.


> To be honest i´m surprised that Singapore has two vehicles and that GIC has assets over $ 300 billion. I´ve heard so for only from Temasek HoldingsUnocal) in relation with Singapore. It´s very impressive that such a small country with an estimated GDP of $ 140 billion, a population under 5 million and especially without a resource base has managed to accumulate close to $ 500 billion in Assets Singapore/Wikipedia. Chapeau!

> Ich bin ehrlich erstaunt das Singapur zwei staatlich kontrollierte Fonds zur Verfügung hat und das GIC mit über 300 Mrd $ so groß ist. Ich habe bisher im Zusammenhang mit Singapur immer nur den Namen Temasek Holdings gehört. Es ist beeindruckend wie es ein kleines Land mit unter 5 Mio Einwohnern, einen BSP von knappen 140 Mrd $ und vor allem ohne Rohstoffbasis schafft fast 500 Mrd $ in Staatsfonds zu pumpen Singapur/Wikipedia . Chapeau!

At the same time, UBS has revised key input parameters of the models that are used to estimate lifetime default and resulting losses for sub-prime mortgage pools. As a result of these revisions, UBS will write down its US sub-prime holdings by approximately a further USD 10 billion.

After these actions, UBS projects a strong BIS Tier 1 ratio of above 12%. ...

In response to continued deterioration in the US sub-prime mortgage securities market, partly driven by increased homeowner delinquencies but mainly fuelled by worsening market expectations of future developments, UBS has revised the assumptions and inputs used to value US sub-prime mortgage related positions. This will result in further writedowns of around USD 10 billion, primarily on CDO and "super senior"1 holdings. In light of continued deterioration in the sub-prime market, valuations of UBS's remaining sub-prime positions reflect the extreme loss projections implied by the prices achieved in the very limited number of observable market transactions in US sub-prime related securities and indices up to the end of November.

As the basis for its wealth and asset management business, UBS wishes to maintain a very strong capital base under all circumstances. Growth in net new money continues, with inflows in Global Wealth Management & Business Banking totalling about CHF 30 billion in October and November. It will therefore strengthen its capital position by issuing new capital in transactions with strategic investors, by selling treasury shares, and by replacing its 2007 cash dividend with a stock dividend.

> Must hurt to sell shares at fire sale prices that they have bought back for a better use of their capital. In Q2 the stock price was in a range of 70-80 Swiss Francs, today close to 50 Swiss Francs. And in total they are selling 36.4 million shares......... Well done!

> Muß sehr schmerzen die teuer zurückgekauften Aktien jetzt zu Schleuderpreisen zu verscherbeln. Ironischerweise sollten die Rückkäufe seinerzeit ja die effektivere Nutzung des Kapitals ermöglichen. Im 2. Quartal lag der Preis zwischen 70 und 80 Schweizer Franken, heute nahe 50...... Und insgesamt werden knapp über 36 Mio zuvor erworbene Aktien nahe Tiefstkursen vertickert...... Gut gemacht!

Strategic investors subscribe to issue of CHF 13 billion of new capital
UBS has reached agreements with two strategic investors – GIC and one other – to subscribe to an issue of CHF 13 billion of mandatory convertible notes. This is subject to the approval of UBS shareholders at an extraordinary general meeting (EGM) which will take place in mid-February 2008. GIC has committed to subscribe to CHF 11 billion and the other investor to CHF 2 billion. The notes will pay a coupon of 9% until conversion into ordinary shares, which must take place on or before a date approximately two years after issuance. The proceeds of the issue will count as Tier 1 capital for BIS capital adequacy purposes after EGM approval.

Sale of treasury shares
The Board of Directors of UBS has further approved the re-sale of 36.4 million treasury shares previously intended to be cancelled. UBS has received indications of interest in a share issue, is considering these and will place these shares over time. This will increase BIS Tier 1 capital by approximately CHF 2 billion.

Proposed replacement of 2007 cash dividend by stock dividend
The Board of Directors proposes to replace the 2007 cash dividend with a stock dividend, i.e. a bonus issue of new shares. This will boost Tier 1 capital by CHF 4.4 billion, of which approximately CHF 3.3 billion is a reversal of accrued dividend for the first nine months of the year and the balance is dividend that will now not accrue. This is subject to EGM approval.

In total, these three actions, when completed and approved, will strengthen UBS's regulatory Tier 1 capital by approximately CHF 19.4 billion. After completion, and taking into account the expected fourth quarter loss, the firm's BIS Tier 1 capital ratio will improve to above 12% from 10.6% at 30 September 2007.

Marcel Rohner, Group Chief Executive Officer, UBS, said: "Conditions in the US mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities. In the last several months, continued speculation about the ultimate value of our sub-prime holdings – which remains unknowable – has been distracting. In our judgement these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation. Together with the strengthening of our capital base this will allow us to concentrate on sustaining and developing our client businesses.

Information on GIC
GIC is a global investment management company established in 1981 to manage Singapore's foreign reserves. With a network of eight offices in key financial capitals around the world, GIC manages a broad diversified portfolio across countries and asset classes that includes equities, fixed income, foreign exchange, commodities, money markets, alternative investments, private equity, real estate and infrastructure investments.

More insights via FT Alphaville UBS boggles - $10bn of writedowns, $17bn in emergency capital

UBS Write Down Estimates "Best Case $ 6 Billion, Worst Case....

They should have floated rumors/estimates of $ 20 billion and then surprise with a lower number like Barclays, Bear Stearns etc...... Sarcasm off..... :-) . UBS has just denied that they expect a big write down . I assume it depends on what is "big" . This comment doesn´t fit well with the comments from UBS at the beginning of the month.UBS: Further Writedowns Possible and this comment from the Wall Street Journal . The example Swiss Re doesn´t give much comfort either......

UBS hätte besser schon vorher Gerüchte über 20 Mrd $ streuen sollen um dann positiv zu überraschen ( siehe Barclays, Bear Stearns usw....... ;-). Gerade hat UBS einen größeren Abschreibungsbedarf dementiert. Ich denke es ist alles eine Frage was "groß" bedeutet. Was solche Dementies selbst aus der Schweiz heutzutage wert sind zeigt "eindrucksvoll" das Beispiel der Swiss Re ........ Auf jeden Fall harmoniert das Dementi nicht sonderlich mit dem Kommentar von Anfang November UBS: Further Writedowns Possible und diesem Kommentar aus dem Wall Street Journal .

Mr. Peace ( Lehman Brotehrs) said UBS may have to record an additional loss, because he compared UBS's and Merrill's exposure to a risky CDO slice known as the mezzanine piece. His analysis shows that UBS has triple the exposure to mezzanine CDO slices as Merrill Lynch yet so far has taken a quarter of the percentage write-down that Merrill took. UBS's holding does include some added protection against losses, Mr. Peace said.

Citi do a Whitney on UBS - “A major reversal of fortune” / FT
According to a note sent out to clients by Citi analysts today, we can “realistically” expect a further $12bn writedown from UBS in the next quarter.

UBS shareholders should also expect to see the dividend slashed, and the value of their equity diluted by a rights issue of up to $7bn. UBS, Citi’s Jeremy Sigee say dryly, will almost certainly need to recapitalise.

In other words, Citi are giving UBS the Meredith Whitney treatment. Is it true what they say - every bully was once bullied?

The difference, of course, is that Citi cut to the chase in disclosing its subprime losses - releasing details of its exposure and a breakdown of the figures. Not that it did Chuck Prince any good.

UBS, however, have been far more circumspect. Consider this table of banks’ disclosed exposure and writedowns on ABS CDOs:



While UBS have the second highest ABS CDO exposure, they have taken one of the lowest writedowns.

Clearly, UBS are not marking their assets at current market prices, and are still heavily relying on marked to model prices. Consider also the fact that many of the CDOs UBS arranged and sponsored have been some of the worst hit - like the appropriately named Vertical Capital, a CDO whose AAA debt was slashed 14 notches to junk in one fell swoop.

Consider this table from Citi, which neatly summarises the price declines on MBS and CDOs (measured respectively by declines in the ABX and TABX indices from Markit) It’s pretty clear that UBS’s average writedown so far is paltry

Citi outline three possible scenarios for UBS:
First we assume markdowns similar to Merrill Lynch. Under that scenario, UBS would need to take markdowns of SFr 6.7bn in 4Q07. Translating this revenue shortfall one-to-one to PBT (thereby assuming no clawback on the cost side), the group’s PBT would be -SFr 3.2bn for a net loss of SFr2.3bn. The Tier 1 ratio would be 9.5% under Basel I and 9% under Basel II. This is below the group’s target. However, cancelling the dividend (SFr4.2bn) would bring back the ratio to 10% under Basel II.

The second scenario takes conclusions from our Fixed Income credit strategists, assuming 30% writedowns on HG ABS CDOs and 60% on mezzanine ABS CDOs. UBS would report a loss of SFr 7.9bn in 4Q07, its Tier 1 ratio would drop to 8.1% (Basel I) and 7.6% under Basel II. The Tier 1 would remain below target even if the dividend were cut, raising the possibility of a capital shortfall.

The third scenario is a worst-case scenario. Under this scenario (50% writedowns on HG ABS CDOs and 100% on mezz ABS CDOs), UBS would end up with a substantial SFr22bn writedown. The group’s Tier 1 ratio would drop to 5.8% (Basel II). Even after cutting the dividend and accounting for a lower group Tier 1 ratio of 9% (Basel II), a capital shortfall of SFr 8.5bn would remain, raising the prospects of a large capital increase/rights issue.