Interest Rate Roundup

Monday, December 10, 2007

UBS' $10 billion whopper; Societe Generale's SIV bailout

Looks like European mega-bank UBS had a little bit of a problem with its mortgage book. Overnight, the company announced ...

* $10 billion in total write-downs related to the subprime mortgage mess. The company now expects to lose money in the fourth quarter; previously, it had predicted a profit. In announcing the write-downs, UBS Chief Executive Marcel Rohner said:

"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 ... In our judgment these write-downs will create maximum clarity on this issue and will have the effect of substantially eliminating speculation."

* The value of some mezzanine CDO investments were marked down to 45 cents on the dollar, according to Bloomberg.

* UBS also sought to raise capital in the wake of its write-downs. It's exploring the sale of 36.4 million shares previously scheduled to be cancelled. The company is also selling convertible notes worth about $11.5 billion to the Singapore government's investment arm and an unidentified Middle Eastern investor. The notes carry a coupon yield of 9%. In other words, like Citigroup, Fannie Mae, and Freddie Mac, UBS is being forced to pay up to shore up its capital base.

Meanwhile, the largest bank in France, Societe Generale, is bailing out its structured investment vehicle, or SIV. The $4.3 billion Premier Asset Collateralized Entity, or PACE, fund got whacked by the subprime mortgage meltdown. So SG is taking its assets onto its balance sheet, including $387 million in bonds backed by subprime loans.


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