Hardest Hit

Among the financial giants teetering from credit crunch three large letters say “hardest hit” — UBS. The Swiss bank has taken a staggering $38 billion of credit write-downs so far. In response UBS has set a blistering pace to repair the crushing impact of the write-downs and related losses to the balance sheet. So far the banking giant has raised $26 billion in cash, has cut jobs and costs, and is shedding debt. Yesterday the pace of repair quickened as UBS moved on multiple fronts by simultaneously shoveling a portfolio of severely damaged assets into a SIV to be managed by Black Rock and issuing $15 billion in a rights issue.

UBS AG Wednesday said it has closed the sale of troubled mortgage-backed securities to a distressed asset fund at a discount, indicative of the Swiss banking giant’s efforts to reduce risky positions.

Zurich-based UBS said it sold assets of the subprime and Alt-a category with a nominal value of $22 billion for around $15 billion to a special investment vehicle led by U.S. fund BlackRock, 49%-owned by Merrill Lynch & Co.

Interestingly, $11.5B of that asset sale is being financed by UBS itself, so the sale does not raise as much cash as you would think.
Separately the bank sold new shares, netting $15 billion in a rights issue.

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.

It seems that UBS is doing everything except perhaps generating profits — as with the credit crisis hardening they are not likely to be had soon. So, what’s the point to the hanging-on? Capital raised is not the same as profits generated and sooner or latter a return to sustainable profitability is all that can save the bank. The damaged debt UBS sold they had to finance, and the shares sold were dilutive — each and every one of them. This is the credit bubble after the burst and there are no free rides. For each penny raised — UBS has $26.5 billion worth already – some taxpayer or shareholder somewhere took a hit, and the hits keep piling on. While the authorities and talking heads play up the “support” banks like UBS are receiving, the little guy is getting soundly drubbed.