Stock of the Day
|
UBS (UBS)
UBS Writes Off $10bn in Subprime Debt
This morning, investors got news of yet another bank who is struggling to deal with the credit crisis. UBS, headquartered in Switzerland and the largest bank in Europe, announced that the company will be writing down an additional $10 billion in losses, on top of the losses they had already reported last quarter. Previously, in October, the company had announced almost $3.5 billion in losses, as well as the news that 1500 employees would be losing their jobs. And yet despite this news, its stock has been climbing today, up between 2 and 3% during morning trading. Why are investors reacting positively to this news of major loss?
|
| Daily Chart |
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
|
| Stock Analysis |
On the surface, this doesn't seem like news that investors should be rejoicing in. Since October, this adds up to over $13 billion in write downs. The company reported a loss in earnings in October, something UBS hadn't experienced in almost 10 years. Its shares have fallen significantly, losing about 13% since August. And today's announcement reports what is likely to be the biggest loss that any European bank will experience, which is not surprising based on the large amount of collateralized debt obligations issued by UBS.
|
Buy UBS for just $4
|
There is more to the story, however. First, there have been many rumors and speculations about how badly UBS would be hit by the credit crunch. Many investors and analysts were predicting significantly higher losses than the final amount that UBS announced today. So for anyone who had heard high predictions, today's news didn't seem as bad as it actually could have been. Also, when a piece of actual news is released and people can finally stop speculating and guessing what the outcome will be, there tends to be a sense of relief simply because people have finally found out the truth. Finally, UBS used a clever tactic in releasing some positive news along with the news of its loss. The company announced that it will be receiving over $13 billion in capital by selling shares to GIC, a major fund in Singapore, and also an unnamed Middle East investor. In addition, investors do not need to worry that the sale of shares to these companies will result in any major changes to UBS. Although GIC will now have a 9% stake in UBS, their chairman has announced that they do not want to control the bank in any way.
|
Perhaps it was just good strategy on UBS's part, but the mix of good news and bad news seemed to have comforted its investors. And despite the losses, and even the fact that UBS will likely experience a loss of earnings in the fourth quarter and potentially also a net loss for the entire year of 2007, the company still has given the public hope that they will be able to overcome these problems. UBS has been struggling, as have most banks, for many months, as investors have been left to wait and see what the final results of the credit crisis will be. There's always a change that the situation could continue to take a turn for the worse for UBS, but it's also a possibility that the company's gains experienced so far today could be a sign of the company's recovery.
|
Special Offer
|
| Buy UBS for just $4
|
Profile |
Click here to view a detailed profile of UBS.
|
|
|
|
|
Back to newsletter list
