As I see that UBS is writing off $10 billion (with a b) in subprime losses and almost certainly will write off more bad losses in the months to come, something caught my eye that doesn’t add up.
Swiss banking giant UBS AG said Monday it will write off a further $10 billion on losses in the U.S. subprime lending market and will raise capital by selling substantial stakes to Singapore and an unnamed investor in the Middle East.
The hell? I can understand a predatory capital group in the US trying this (throwing good money after bad is how this got started after all), but Singapore’s national investment fund and an “unnamed investor in the Middle East?”
What gives? Surely people in other countries are smart enough to see that the global financial system isn’t exactly profitable right now. The bloodbath is only getting started, so why invest now?
Tony Tan, deputy chairman of GIC, said the 9 percent stake does not mean Singapore is seeking control of the Swiss bank.
“GIC is now the single largest investor in UBS and this is the largest investment GIC has made in any company,” Tan said during news conference in Singapore. “We did not make it a condition that our investment should have a representation (on UBS’s board.) We have no desire to control the business of the bank.”
It was the first time that the publicity-shy GIC, which manages Singapore’s foreign reserves, has revealed a major investment.
Western banks have lost billions of dollars from their exposure to U.S. subprime loans, and cash-rich sovereign wealth funds have been stepping in to help them boost their capital. Last month the Abu Dhabi Investment Authority, the sovereign investment fund of the Gulf Arab state, acquired a 4.9 percent stake in Citigroup Inc., the nation’s largest bank, for $7.5 billion.
UBS said it attracted about 30 billion Swiss francs in new money from clients in October and November. Ensuring a strong capital base will allow the bank to continue to make acquisitions to further expand its wealth management business, when such opportunities arise, UBS Chairman Marcel Ospel told a conference call.
“Our losses in the U.S. mortgage securities market are substantial, but could have been absorbed by our earnings and capital base,” Ospel said in a statement.
“The write-downs and capital raising represent a dramatic U-turn from guidance given by Chief Financial Officer Marco Suter just three weeks ago,” said analysts Matthew Clark and Vasco Moreono of Keefe, Bruyette & Woods Ltd.
The fact that the capital-raising outweighs the write-down makes it appear that UBS is trying to draw a line under its subprime woes, Clark and Moreono said.
In other words, people are continuing to throw good money after bad in an attempt to keep the global financial system from imploding with a planet-rending bang. The problem is we can’t read the numbers on the countdown timer. We don’t know when it’s going to explode.
I’m thinking the system is so overly leveraged that these foreign reserve funds and wealthy oil investors have no choice but to prop up the banks with their own cash, because once people figure out that the cash that banks have on hand are less than a fraction of the 1% of what they hold on paper, the bank runs will begin in earnest and the system will go belly up.
Therefore these funds are doing everything they can to keep the shell game going. They have to, because they have an awful lot of paper losses to go poof (especially these sovereign investment funds managing foreign reserves of entire countries).
The US can’t officially bail out the banks. But that’s apparently not stopping everybody who is NOT the US from doing so.
So when the system does go bang, it’s going to take down a lot more than just the US.
