UPDATE: UBS Cap Hike, 2Q Loss Sees Mixed Reaction; Shares Down
June 26 2009 - 7:01AM
Dow Jones News
UBS AG's (UBS) fourth capital increase in less than two years
was welcomed by the Swiss government and regulator, while analysts
worried that the 3.8 billion Swiss franc ($3.45 billion) cash call
may not be the last for the Swiss bank.
Early trading in UBS shares was rocky, with the stock mostly
lower as investors digested the bank's warning of a second-quarter
net loss from the reversal of previous credit gains on its own debt
and on restructuring charges.
At 0958 GMT, the shares were down 0.41, or 2.9% at CHF13.75,
lagging an 0.8% rise in the Stoxx Europe 600 bank index.
Even if the loss warning didn't surprise analysts, many of whom
had been predicting a loss-making quarter, a raft of other problems
continues to cloud UBS' prospects, they said.
"To turn positive on UBS we need to see evidence that the bank
doesn't need yet another capital increase, evidence of net new
money inflows in wealth management and Swiss Bank, a disposal of
the Swiss government's stake, a resolution to the John Doe summons,
and a clear communication of strategy by UBS management," Merrill
Lynch Bank of America analyst Derek de Vries said. He rates UBS at
neutral with a CHF16.20 target price.
UBS was at pains to highlight that it is not raising capital due
to one isolated, negative event, but instead to "take advantage of
current market opportunities."
The cash call appears to have been spurred by talks with the
Swiss financial regulator, the Swiss National Bank and the
government, which holds a security entitling it to a roughly 9.3%
stake in UBS, and aimed at proving UBS can raise funds itself.
"There is no official reason given for the capital raise but it
appears to have been a precondition to the sell down of the
government stake," Execution analyst Fiona Swaffield said.
A spokesman for the SNB welcomed the cap hike, which he said
fulfills the central bank's expectations.
The UBS statement said: "The capital raising helps strengthen
confidence in UBS and the Swiss financial center, which is
consistent with the view of our regulators."
Late Thursday, the government said it wouldn't sell shares
before Aug. 4 in order not to endanger the capital hike, but that
it continues to explore undisclosed avenues on how and when to
exit.
UBS' cash call shines an uncomfortable spotlight on Germany's
Deutsche Bank AG (DB), which continues to look weakly capitalized
next to European rivals, particularly after Barclays PLC (BCS) got
a capital lift from selling Barclays Global Investors, Execution's
Swaffield said.
Deutsche Bank's Tier 1 ratio was 10.2% in the first quarter, but
its core Tier 1, which excludes hybrid securities, was 7.1%,
compared with between 9% and 10% Swaffield expects from Credit
Suisse Group (CS) and UBS in the current quarter.
Swaffield rates Deutsche Bank at sell, Credit Suisse buy, and
UBS hold. Fair values are EUR40, CHF55 and CHF17.70,
respectively.
Paradoxically, the UBS profit warning comes against a backdrop
of improving business after the bank offloaded most of its illiquid
securities onto a fund managed by the SNB.
"The operating result for the quarter is expected to represent
an improvement compared with the first quarter of 2009, largely
attributable to better market conditions affecting the investment
bank and a reduction in losses and write-downs on legacy risk
positions," UBS said in a statement.
As a result, the second quarter indication isn't seen reading to
UBS' larger European rivals Credit Suisse and Deutsche Bank. Shares
in those banks rose sharply Friday.
Among UBS' remaining problems, those at its private bank - which
caters to the financial needs of the wealthy - loom the
largest.
A court case brought by the U.S. Internal Revenue Service
against UBS to gain access to 52,000 sets of client data is set to
begin July 13 in Miami. While the U.S. case against UBS - being
made through a so-called John Doe summons - might still be settled,
months of uncertainty have taken their toll on the bank's clients
and funds.
UBS said the second quarter, which will be formally reported
Aug. 4, had again been marked by an unspecified amount of funds
leaving the private banking and asset management arms.
Company Web Site: http://www.ubs.com
-By Katharina Bart, Dow Jones Newswires; +41 43 443 8043;
katharina.bart@dowjones.com
(Martin Gelnar and Anita Greil in Zurich contributed to this
item.)