Think the retail investor is pricing these bank stocks efficiently? This reminds us quite a bit of the tech bubble startups with their various tiers of venture funding. The last man in was able to carve out the value that remained, and the earlier funding common shareholders could wait for hell to freeze over before seeing any return on capital.
UBS to Sell Shares at 31% Discount in Rights Offer
By Elena Logutenkova and Warren Giles
May 22 (Bloomberg) -- UBS AG, the bank with the biggest net losses from the subprime crisis, plans to sell new shares at a 31 percent discount to yesterday's closing price to raise 15.5 billion Swiss francs ($15.1 billion) in new capital.
The shares will be sold at 21 francs each and investors are entitled to 7 new shares for each 20 held, the Zurich-based bank said today in a statement. The discount compares with a 46 percent markdown offered by Royal Bank of Scotland Group Plc in April and a 48 percent discount in Bradford & Bingley Plc's capital increase this month.
UBS, which already got a 13 billion-franc capital injection this year, aims to repair the balance sheet after about $38 billion in subprime-related writedowns and 25.4 billion francs in net losses since July. Banks worldwide have raised about $270 billion to shore up capital.
``The amount raised is slightly higher than the 15 billion francs originally indicated,'' said Peter Thorne, a London-based analyst at Helvea with an ``accumulate'' rating on the stock. ``Lots of UBS investors are in it because they thought it was a safe financial growth stock and in the last few months it's become a recovery basket case, so a lot of them won't take up the offer.''
UBS fell 18 centimes, or 0.6 percent, to 30.46 francs at 11:31 a.m. in Swiss trading, giving it a market value of 66.3 billion francs. The bank has gained 11 percent since the rights issue was announced on April 1. It's still down 59 percent over the past 12 months....
Urged to Split
Credit Agricole SA, France's third-biggest bank, said last week it plans to raise 5.9 billion euros ($9.3 billion) in a rights offer to replenish capital after first-quarter profit fell 66 percent.
UBS got shareholder approval for its rights offering at the April 23 annual meeting, which also saw Chairman Marcel Ospel step down and his replacement, Peter Kurer, elected to the board. Switzerland's biggest bank is resisting proposals from shareholders, including former UBS president Luqman Arnold, to split off the investment-banking unit and sell divisions such as asset management and Brazil's Pactual to raise capital.
The offer is fully underwritten by JPMorgan, Morgan Stanley, BNP Paribas SA and Goldman Sachs Group Inc., UBS said. The banks will get an underwriting fee of 1.65 percent of gross proceeds, which UBS expects at about 16 billion francs.
``We expect to upgrade'' UBS's earnings per share estimate because the issue price is higher than the minimum 12 francs approved, wrote JPMorgan Chase & Co. analysts including Kian Abouhossein in a note to investors today. JPMorgan has an ``overweight'' recommendation on the stock.
UBS said earlier this month it expects the core Tier 1 capital ratio to increase to 11.8 percent from 6.9 percent at the end of March, after the rights offer and the bank's April sale of 1.6 billion francs in hybrid bonds.
UBS plans to publish a prospectus for the share sale on May 23. It will be selling 760.3 million new shares in the rights offer, which are due to start trading on June 13.
To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net; Warren Giles in Geneva at wgiles@bloomberg.net
May 23, 2008
UBS Moves to Raise $15 Billion
By DAVID JOLLY
PARIS — The Swiss banking giant, UBS, said Thursday that it would raise more than $15 billion by issuing sharply discounted shares as it tried to restore capital depleted by losses on mortgage securities.
The capital increase marks the second time that UBS has had to raise funds since the credit markets tightened last year with the collapse of the American subprime housing market. In February, the bank raised 13 billion Swiss francs, or $12.6 billion, in capital from the Government of Singapore Investment Corporation and an unidentified Middle Eastern investor.
The crisis has hit UBS harder than any other European financial institution. It posted a net loss of $10.9 billion in the first quarter. It also wrote down $19 billion of asset-backed securities in the quarter, bringing its total write-downs to about $38 billion since the credit markets began to tighten last summer.
Banks globally have written off more than $330 billion in losses since last summer and regulators have strongly encouraged them to shore up their capital.
UBS said it expected the rights issue to raise 15.97 billion francs, or $15.5 billion. It is issuing 760 million new shares at 21 francs each, 31 percent below the Wednesday closing price of 30.64 francs.
The discount percent was broadly in line with market expectations, though the capital increase was about $1 billion larger than analysts had predicted. The capital increases have become necessary as UBS's shareholders equity fell to 16.4 billion francs at the end of March from 51.3 billion francs a year earlier.
UBS has been moving aggressively to shore up its balance sheet. On Wednesday, it said it had moved a portfolio of $15 billion in distressed assets to a new structured investment vehicle to be run by BlackRock, an asset management company. The bank loaned BlackRock more than $11 billion to take on those debts, and remains on the hook if losses exceed $3.75 billion, but it was able to move some of that debt off its balance sheet.
“Appearances are very important in financial stocks,” said Peter Thorne, a banking analyst at Helvea in London. “And if that gives the market and investors and regulators confidence, then it's got to be done.” ("It is better to LOOK good than to BE good." Fernando Lamas School of Financial Management - Jesse)
UBS also said this month that it would eliminate 5,500 jobs to cut costs and further reduce risk exposure in the United States, but it was also trying to restore investor confidence in its asset- and wealth-management businesses.
UBS said the rights issue had been fully underwritten by a syndicate of banks led by JPMorgan, Morgan Stanley, BNP Paribas and Goldman Sachs.
Shareholders will have the right to purchase 7 new shares for each 20 they already own.
