Bankers are steeling themselves for more sub-prime write-downs after UBS, Europe’s largest investment bank, more than tripled its provision to $14.4bn (£7bn) and warned of a 'possible' full-year loss. Financial Times, Daily Telegraph
Despite the dire statement, UBS shares climbed almost 2% and lifted shares across the sector after it revealed that the Government of Singapore Investment Corporation and an undisclosed Middle Eastern investor would inject Sfr13bn (£5.6bn) into the bank to reinforce its capital position.
One banker said: 'It can be seen as good news. The ability to refinance the financial sector remains pretty strong. Investors still like it. Compare this option to a deeply discounted rights issue.'
UBS revealed details of its capital strengthening alongside a $10bn write-down on its US sub-prime holdings, which comes on top of the $4.4bn charge it took in October. Jon Peace, banks analyst at Lehman Brothers, said: 'We expect further write-downs at other investment banks.'
Analysts said Barclays and Royal Bank of Scotland are among those that may be affected by the weakening sub-prime market, but believe Merrill Lynch and Citigroup will be the main casualties.