Stock of the Day
|
UBS (UBS)
UBS Ousts Ospel but Future Still Looks Grim
Tired of all the dismal news of subprime mortgages, limited liquidity and investment bank losses? So are investors in those banks. In fact, investors in Swiss-based UBS have decided to cut short the tenure of the current chairman after less than seven months on the job. Sure, the exposure to derivatives and mortgages didn't start in July, but with so many bad things snowballing into one aggregate mess investors may simply be saying, "How did you not tell us this was going to happen?" After all, the company's share price has already fallen nearly 30% in 2008. With the bank likely to issue nearly $18 billion to a sovereign wealth fund in order to stem the bleeding, investors have to be wondering when this whole nightmare will end.
|
| 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 |
A week ago, on February 14th , UBS announced that it lost $11.4 billion dollars during its fourth-quarter. The big loss was mostly due to the company's exposure to America's subprime market. The news was certainly not the Valentine's gift that shareholders wanted, especially since many of them have had to deal with write downs and losses from other banking houses in recent months. In fact, the loss managed to make the ones at CitiGroup and Merrill Lynch (both for $9.83 billion) look somewhat good. In the month leading to the announcement Wall Street buzzed with possibilities. Would UBS be broken up? Will it have to restructure? Will it cut jobs? While the latter certainly has happened (the company ousted some fixed-income analysts), it is a tough call on whether the bank has plans on shaking things up further. There doesn't seem to be any hint that an expensive and complicated break up is on the horizon.
|
Buy UBS for just $4
|
UBS, along with several other investment banks, may have to swallow its pride and raise money ($17.5 billion, in fact) from sovereign wealth funds (SWF) - giant government-operated funds often funded by oil revenues - from countries in the Middle East and Asia. While investors generally treat the issue of new capital as a threat, the fact that many banks would be found on the wrong end of a short rope without them has kept investors from being overly-critical. After all, many of these funds are salivating at the chance to snap up a stake in normally-profitable banks and are flush with cash to do so (the Abu Dhabi SWF, for instance, is worth an estimated $875 billion). UBS plans to sell the stake to the Government of Singapore Investment Corp. (a SWF worth $330 billion) and an unidentified investor in the Middle East.
|
For UBS there is the added embarrassment of falling behind fellow Swiss financial firm Credit Suisse (CS: Charts, News, Offers). The most glaring question is whether UBS and other banks should combine investment banking functions with those normally reserved for commercial banking. By allowing the company to focus on two seemingly different aspects of finance UBS executives put investors at added risk. After all, exposure to collateralized debt (CDOs) limits the stability that private banks usually are able to exude. Investment banking is inherently risky.
|
Shareholders, seeing nearly 50% of their shares' value since last spring, are losing patience. There was a strong indication on Thursday that 2008 may be the last year that Marcel Ospel, the current chairman, will be in charge of Europe's largest bank. He will follow in the steps of the recently departed CEOs Stanley O'Neal of Merrill Lynch (MER: Charts, News, Offers) and Charles Prince of Citigroup (C: Charts, News, Offers), both of whom were at the helm when the mortgage and credit crises broke. The downturn might not be his fault (some look to ex-CEO Peter Wuffli as the primary culprit), but at this point investors might just want blood. The lack of confidence in Ospel is at least partially warranted, what with the $14 billion writedown and $11.4 billion loss and all. With a slowdown in the U.S. economy all but assured, a quick return to the days of yore are unlikely to be on the 2008 agenda.
|
Special Offer
|
| Buy UBS for just $4
|
Profile |
Click here to view a detailed profile of UBS.
|
|
|
|
|
Back to newsletter list
