$15.5bn UBS rights issue at 73% discount, what next?
Posted on 23 May 2008 with no comments from readers
Yesterday Swiss bank UBS launched a $15.5 billion rights issue to restore its tattered balance sheet at a huge 73 per cent discount to the price its shares were trading at a year ago.
This clearly explains the rush to clear the decks with the sale of $22 billion in distressed assets to Blackrock for $15 billion the day before, with the bank financing most of the purchase itself and the US hedge fund only putting up $3.75 billion in cash.
Is that the end of the sub-prime crisis for the world’s biggest wealth manager whose handling of its own wealth has been none too impressive over the past year?
Probably not for investment banks are now facing a crisis of another kind – a precipitous fall in transactions. Commercial real estate transactions in New York, for example, fell by 82 per cent in the first quarter.
You have to wonder what impact the sub-prime crisis has had on ongoing business at UBS. The idea that profits can some how bounce back to the levels of the good old days is obviously hopelessly flawed optimism. There is damage to reputation and clients just are not doing so many deals.
One solution is to generate your own business by selling your own assets at a discount and then financing the purchase. But my guess is that UBS is not going to be with us as an independent concern for much longer – that is if a rival like Barclays can find the money for a bid. Could Barclays leverage a deal against the UBS balance sheet, and so keep the cash component low? Well stranger deals have been known.
no Comments posted by readers:
My way of reading figures says barclays are equally impaired, just that they haven’t ‘fessed up yet.
Remember a month or so ago, when UK banks were bleating and weeping to the FSA and anyone else who would listen, about the short-seller-criminal-insiders who brought their share prices crashing in the space of a few hours??
Look at the volume of capital raising since then, and the share prices of the very banks who were bleating and moaning and crying “foul”, or is it “fowl”!!!
Seems the very evil entities who brought down the banks were correct, and the banks were lying through their teeth.
Funny how we never heard anything about that investigation by the FSA.
MSM, who were quick to condemn are suddenly silent.
Par for the course.
Barclays is far cleaner as far as the balance sheet is concerned, unless something is untold. But I note that UBS has warned of further write-offs since presenting the rights issue. That really ought to be a red letter warning to shareholders.
Something smells here