Swiss banking giant UBS announced this morning that it would take a massive $19 billion write-down of its assets in the first quarter and seek $15 billion in new capital, Bloomberg reports. Its chairman, who helped create the behemoth through a merger with Paine Webber several years back, is resigning after the losses, which are due largely to U.S. mortgage-backed securities.
It’s the second time UBS has had to go hat in hand to investors in recent months as write-downs have diminished the capital reserves it is required to hold. The Wall Street Journal says the bank will take the dud assets and quarantine them in a separate unit, which it hopes to sell or spin off.
The debacle is hurting the bank’s core business:
Furthermore, a solid capital base is a prerequisite to attracting wealthy clients to its high-margin private banking arm, which analysts believe is already being hit by outflows as nervous clients withdraw assets and channel them to rival banks.
The Financial Times contradicts that, saying UBS reported money continued to pour into that business. The paper notes that UBS’s exposure to subprime mortgages fell by nearly half in the first quarter to $15 billion.
And the beat goes on
Deutsche Bank, which has weathered the storm well so far, announced it will take a $4 billion hit in the first quarter for losses on mortgage securities and leveraged buyout loans.
And Lehman Brothers says it will raise more than $3 billion to boost its capital position and help fend off rumors that it’s going the way of the Bear.
In other housing-related news, the WSJ reports Thornburg Mortgage narrowly averted bankruptcy after investors agreed to buy $1.4 billion in bonds and other assets. The company, though, will have to pay a whopping 18 percent interest on those bonds, up 50 percent from the still-high 12 percent it was seeking to pay just a couple of days ago.
Bush plan DOA
The backlash against the Bush administration plan to update financial regulation picked up yesterday, the papers say.
The Journal leads its sixth column on A1 with a story saying lobbyists, small banks, and some state officials are opposed. The New York Times on A1 says in its lead that many predict it’s “dead on arrival.”
“The Treasury Department’s blueprint is designed to boost Wall Street’s competitiveness, not Main Street investor protection,” said Karen Tyler, president of the North American Securities Administrators Association and the securities commissioner of North Dakota.
Consumer groups also criticized it.
“Rolling out this plan in the middle of the current crisis is like telling Hurricane Katrina victims stranded on their rooftops in New Orleans, ‘Don’t worry, if you can hold for a few years, we’ve got a really great plan to restructure the federal emergency response system,’ ” said a statement issued by the Consumer Federation of America… “Experience has repeatedly shown that regulatory failure, not overregulation, is the greatest threat to the health of our markets.”
Perhaps unsurprisingly, given Paulson’s recent history as head of Goldman Sachs, Wall Street and Big Business seem to be the only parties that like the plan.
The NYT says senior Democrats think the regulatory shuffle isn’t a high priority—especially in a presidential election year—and that they’re focused on bailing out homeowners.
The Los Angeles Times also quotes the CFA and has our Quote of the Day:
“It was regulators’ mindless belief that the market is always right that made them deaf to warnings that the sub-prime market was trouble,” said Barbara Roper, investor protection director for the Consumer Federation of America. “Until you change that attitude and the reluctance to regulate, consumers and investors aren’t going to see any benefit.”
Another hedge fund bites it
Another hedge fund is in trouble. This time it’s Pardus Capital Management, which isn’t letting investors withdraw their money “at a time when many of its holdings are plummeting in value,” says the Journal on C1. It doesn’t want to be forced into a fire sale of assets that nobody wants at the moment.
Pardus, which manages more than $2 billion in funds, is known as an activist investor who’s trying to force Delta and United airlines to merge. Its fund is down 40 percent from its peak last year.
Meanwhile, the FT says so far this year, hedge funds are off to their worst start in history, but doesn’t tell us just how bad that is. Numbers, people. The paper does say March was the worst hedge-fund month since Long Term Capital Management blew up in 1998. Hedge funds were down 2.4 percent on average last month.
“I’d like to say there was a bright spot but there really wasn’t,” said one prime broker.
A whiff of desperation