Zurich: Swiss bank UBS launched a deeply discounted rights issue worth 16 billion Swiss francs ($15.55 billion) on Thursday, 22 May, aiming to issue new stock at about a third below its latest market price.
The emergency offering, at 21 francs a share — a 73% below its peak price less than one year ago — illustrates the extent of UBS’s troubles after the world’s largest wealth manager was forced to write down around $37 billion of assets hit by the US subprime mortgage crisis.
The issue price comes far below what some analysts had expected in recent weeks, when speculation had centred around 24-25 francs per share, but above the 17-20 franc price feared by some, which would have meant a massive dilution for existing shareholders.
“They chose the middle way. Twenty-one francs is right between the prices that we were hearing. The shares could recover in the short term,” said one Zurich trader.
Shares were indicated opening near flat in pre-market indications provided by bank ClaridenLeu. One Zurich trader said the shares may find short-term support on relief that the issue was not even greater in size.
UBS shares have shed more than 36 percent so far in 2008, forcing the bank to bring the emergency rights issue to market at a low level to ensure support.
UBS said it would issue over 760 million new shares to repair its battered balance sheet, offering existing shareholders seven new shares for every 20 shares they hold.
UBS, Europe’s hardest-hit bank by the subprime crisis, is busy restructuring and offloading distressed assets after heavy losses originating in the US mortgage debt crisis forced it into two emergency capital-raising exercises.
The rights issue will take the bank’s capital-raising measures, which include cash injections from Singapore and a Middle East investor, to around 37 billion francs — almost the same as its $37 billion in writedowns from the crisis.
On Wednesday the group clsoed a $15 billion deal to sell weakened mortgage-related assets to US fund manager Blackrock in a deal similar to one used by Citigroup.
The rights issue has been fully underwritten by a syndicate of banks led by JP Morgan, Morgan Stanley, BNP Paribas and Goldman Sachs.