UBS Unravels

UBS had barely finished announcing that it was seeking $15.5B in cash to cushion current write-downs when they said they will probably lose more. Of course, the bank got its $15.5B, but UBS took a slap in the face for it. It was the bank’s second capital increase in less than a year. Witness:

Late last year, UBS announced it had raise billions through share sales to sovereign wealth funds in Singapore and the Middle East. Government of Singapore Investment Corp. injected $9.75 billion, while an undisclosed investor in the Middle East purchased a $1.77 billion stake.

Included in the current rights offer is the warning of more losses.

UBS, in the prospectus for its 16 billion-franc rights offer, said the bank’s losses on non-U.S. residential and commercial real-estate securities “could increase in the future.” UBS is also evaluating whether to limit or discontinue one or more U.S. reference-linked note programs, which “could result in a charge to income,” the bank said in the document, released after markets closed on May 23.

And as the great unraveling continued, UBS pulled apart the very mechanism of unregulated greed and corruption that spawned its $45B write-down. Tangled in the weave of its depraved fabric, the criminality of LIBOR was exposed:

Few companies have suffered from the subprime mortgage collapse more than UBS AG, which has taken $38 billion of writedowns and losses, replaced its chief executive officer and chairman and saw its stock tumble 60 percent. Yet on 85 percent of the days between July and mid-April, the Zurich-based bank told the British Bankers’ Association that it could borrow in the money markets at lower interest rates than its rivals.

The rate setting scam, just as any other, is enabled by the ability of a criminal cabal of insiders to exercise complete power over money:

Every morning the BBA, an unregulated trade group, asks member banks how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies from dollars to euros and yen. It then calculates averages, throwing out the four highest and lowest quotes, and publishes them at about 11:30 a.m. in London. Three-month dollar Libor was set at 2.64 percent today.

Even with the special advantage to borrow money at a lower rate than its competition, UBS could not compete. The cheap money was no advantage, only a temporary high that caused a permanent addiction, with or without which the bank cannot live.