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Monday, December 10, 2007

UBS Confessess, More SIVs go on Balance Sheet, Bond Sales Collapse

UBS to Sell Stakes After $10 Billion in Writedowns (Update4): “UBS AG will write down U.S. subprime mortgage investments by $10 billion, the biggest such loss by a European bank, and replenish capital by selling stakes to investors in Singapore and the Middle East.

Europe's largest bank by assets plans to raise 13 billion Swiss francs ($11.5 billion) selling bonds that will convert into shares to Government of Singapore Investment Corp. and an unidentified Middle Eastern investor, Chairman Marcel Ospel said on a conference call with reporters today.

UBS also plans to sell 36.4 million treasury shares that it previously intended to cancel, raising about 2 billion francs, and proposed replacing the 2007 cash dividend with stock, boosting capital by 4.4 billion francs. The convertible bond sale and dividend change must be approved by an extraordinary shareholders meeting in mid-February, the bank said.

UBS plans to raise a total of 19.4 billion francs through all the measures, which will improve its so-called Tier 1 capital ratio, a measure of financial strength, to more than 12 percent from 10.6 percent on Sept. 30.”

That’s a pretty massive write down and some serious dilution. UBS is trading up pre-market. Go figure.

Societe Generale Takes On $4.3 Billion of SIV Assets (Update3): “Societe Generale SA, France's second-biggest bank by market value, will bail out its $4.3 billion structured investment vehicle after losses related to the collapse of the U.S. subprime-mortgage market.

Societe Generale will take on assets including $387 million of bonds backed by subprime mortgages, the Paris-based lender said in an e-mailed statement today. The company rose 1.6 percent to 108.19 euros ($159.25) as of 1:35 p.m. in Paris.

The rescue of Societe Generale's SIV follows similar actions by London-based HSBC Holdings Plc and Rabobank Groep NV in Utrecht, Netherlands, to limit losses from a potential fire sale of assets. The falling value of Societe Generale's Premier Asset Collateralized Entity Ltd., or PACE, pushed it close to having to name a trustee to protect senior debt holders, Standard & Poor's warned on Dec. 7.”

Putting these assets on their balance sheets limits the amount of capital these institutions can throw around in new loans to businesses and consumers.

Global Bond Sales Tumbled 66% Last Quarter, BIS Says (Update1): “Governments and companies reduced sales of bonds and money-market securities by 66 percent to a net $396 billion worldwide in the third quarter as credit markets slumped, the Bank for International Settlements said.

Borrowing declined from a record $1.17 trillion in the second quarter, according to a report today by the BIS, which has monitored financial markets for central banks since 1930. The BIS figures subtract maturing debt from sales.

The biggest financial institutions cut lending after writing down more than $70 billion on securities related to bad U.S. home loans. Europe and emerging markets led the decline, with borrowing in Germany, France and the U.K. dropping 77 percent to $61 billion. That compares with a 56 percent decline in the U.S. to $165 billion. Emerging market borrowing plunged to $1.4 billion from $67.1 billion in the second quarter.”

This will definitely have a negative impact on the future earnings of the entire financial sector.