Swiss bank UBS today revealed a $10 billion writedown and an emergency injection of funds from Singapore and the Middle East, making it the biggest victim of the US sub-prime crisis to date among major European banks.
Singapore is taking 9% of UBS in a deal that mirrors actions taken by US-based Citigroup. Citi expects to write off between $8 billion and $11 billion and has secured funding from the Abu Dhabi Investment Authority.
The writedown comes after a 4.2 billion Swiss franc hit that UBS suffered at the end of October, and which was also related to US sub-prime mortgages - loans made to high-risk and low-income homebuyers who were later caught out by rising interest rates and are now defaulting on payments.
UBS said it expects a fourth quarter loss, which may even drag it into loss for 2007 as a whole.
The Swiss bank, Europe's fourth largest, also replaced plans for a cash dividend with a stock dividend, and said it would examine its investment bank thoroughly and weed out low-profit divisions.
UBS's shares initially fell almost 3% as investors took fright at the anticipated dilution of their share of earnings. They later recovered on relief that the worst of UBS's sub-prime woes could be over, and were trading 1.4% higher by the close.
The Singapore investment gives the Southeast Asian island-state 9% stake of UBS through its Government of Singapore Investment Corporation (GIC), another injection into a top western bank by a sovereign wealth fund along the lines of the Abu Dhabi Investment Authority's purchase of a $7.5 billion stake in Citigroup.
A further stake of about 1.5% goes to an unnamed Middle East investor, and the two investments raise 13 billion Swiss franc ($11.5 billion) of fresh capital. Oman's State General Reserve Fund denied suggestions that it was the investor in question.
UBS said it had not ruled out granting board seats to the new investors.
UBS Chairman Marcel Ospel, who said he was under no pressure from within the bank to resign, said UBS now faced a challenge refocusing its investment bank, which has taken the full force of the subprime meltdown.
The bank also said it would approve the resale of 36.4 million treasury shares previously intended for cancellation.
Only last month UBS's Chief Financial Officer Marco Suter advised analysts and investors in meetings that the bank did not expect to make any huge writedowns in the fourth quarter.
