Monday, December 10, 2007

Quick Takes: UBS

UBS landed at the top of the financial news today revealing a $10B write-down and an emergency injection of cash from sovereign wealth funds. The Government of Singapore Investment Corp and a group in the Middle East are providing a total of $11.5B in fresh capital.

The situation mirrors what was seen at Citi except that UBS went one step further in eliminating their cash dividend for 2007 and replacing it with a stock dividend. Overall this is a lousy deal for the common shareholders in that both their stock is being diluted and more UBS equity is being effectively relegated to the preferred shares column. However it is easy to counter that the common shares would be near worthless if the bank was not able to maintain their capital ratios or was forced to merge for pennies on the dollar (or centimes on the franc). Overall the market took the deal as good news driving UBS shares up nearly 2%.

During the upcoming weeks there is an increasing expectation that more major banks will follow the lead of Citi and UBS. The market can expect to see bailouts from sovereign funds, cuts in cash dividends, dilution of common shares, and further mind-numbing write-downs.

UBS to Sell Stakes After $10 Billion in Writedowns