Swiss banking giant UBS AG (NYSE: UBS) announced this morning it will write down $10 billion, hurt by losses in the U.S. subprime lending market. The company also plans to increase its capital by selling shares to Singapore and an unnamed Middle East investor. The Government of Singapore Investment Corporation will offer UBS 11 billion francs, while an unnamed Middle East investor will invest 2 billion francs. On its move to raise capital by 19.4 billion francs, the Swiss bank has decided to borrow 13 billion Swiss francs from outside investors, sell treasury shares and replace its cash dividend from 2007 with a stock dividend.
Looking ahead, the bank now expects to swing to a fourth-quarter loss. UBS had predicted back in November it would post a fourth-quarter profit despite pessimistic rumors about its subprime holdings.
According to a statement from Marcel Rohner, the company's chief executive, UBS "loss assumptions" were updated "to the levels implied by the current distressed market for mortgage securities," because of the deteriorating U.S mortgage and housing markets. The U.S. mortgage crunch already drove the banking giant to downgrade the value of some assets by over 4 billion francs back in October.
Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.
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