UBS writes off $10 billion in subprime losses

updated 1:27 p.m. ET Dec. 10, 2007

ZURICH, Switzerland - Swiss banking giant UBS AG said Monday it will write off a further $10 billion on losses in the U.S. subprime lending market and will raise capital by selling substantial stakes to Singapore and an unnamed investor in the Middle East.

UBS will now record a loss for the fourth quarter and said “it is now possible that UBS will record a net loss attributable to shareholders for the full year 2007.”

UBS said that the government of Singapore Investment Corp., or GIC, is investing $9.75 billion, while an undisclosed strategic investor in the Middle East is contributing the other $1.77 billion.

As recently as the middle of November, UBS had predicted a profit for the fourth quarter despite ongoing speculation about its subprime holdings.

“Conditions in the U.S 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,” the company’s chief executive, Marcel Rohner, said in a statement.

“In our judgment these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation,” he added.

“UBS revises its outlook for its fourth quarter 2007 from an overall Group profit, as anticipated in its announcement of 30 October 2007, to a loss. It is now possible that UBS will record a net loss attributable to shareholders for the full year 2007.”

In October the bank downgraded the value of some assets by over $3.4 billion because of losses linked to the U.S. mortgage crisis.

The writedown meant UBS posted a net loss of $712 million in the period ending Sept. 30, the first quarter in nine years in which it suffered an operating loss.

Tony Tan, deputy chairman of GIC, said the 9 percent stake does not mean Singapore is seeking control of the Swiss bank.

“GIC is now the single largest investor in UBS and this is the largest investment GIC has made in any company,” Tan said during news conference in Singapore. “We did not make it a condition that our investment should have a representation (on UBS’s board.) We have no desire to control the business of the bank.”

It was the first time that the publicity-shy GIC, which manages Singapore’s foreign reserves, has revealed a major investment.

Western banks have lost billions of dollars from their exposure to U.S. subprime loans, and cash-rich sovereign wealth funds have been stepping in to help them boost their capital. Last month the Abu Dhabi Investment Authority, the sovereign investment fund of the Gulf Arab state, acquired a 4.9 percent stake in Citigroup Inc., the nation’s largest bank, for $7.5 billion.

UBS said it attracted about 30 billion Swiss francs in new money from clients in October and November. Ensuring a strong capital base will allow the bank to continue to make acquisitions to further expand its wealth management business, when such opportunities arise, UBS Chairman Marcel Ospel told a conference call.

“Our losses in the U.S. mortgage securities market are substantial, but could have been absorbed by our earnings and capital base,” Ospel said in a statement.

“The write-downs and capital raising represent a dramatic U-turn from guidance given by Chief Financial Officer Marco Suter just three weeks ago,” said analysts Matthew Clark and Vasco Moreono of Keefe, Bruyette & Woods Ltd.

The fact that the capital-raising outweighs the write-down makes it appear that UBS is trying to draw a line under its subprime woes, Clark and Moreono said.

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