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Chalk Up Another Bailout

Written By Brian Hicks

Posted December 10, 2007


Ho Hum….

Another day……. another huge bailout of worldwide financial giant.

The culprit?  Just the usual suspect–massive losses in its portfolio of CDOs.

But there’s nothing to see here folks… so do us all a favor and just move along.

If it was only that easy.

From Reuters by Andrew Hurst entitled: UBS writes down $10 bln, Singapore injects capital

"UBS revealed a $10 billion writedown and an emergency injection of funds from Singapore and the Middle East, making it the biggest victim of the U.S. subprime crisis to date among major European banks.

Singapore is taking 9 percent of UBS in a deal that mirrors actions taken by U.S.-based Citigroup. Citi expects to write off between $8 billion and $11 billion and has secured funding from the Abu Dhabi Investment Authority.

"There must be a suspicion that it (UBS) feels a strong capital base is necessary just in case there is need for further write-downs," said Helvea analyst Peter Thorne.

The writedown comes after a 4.2 billion Swiss franc ($3.7 billion) hit that UBS suffered at the end of October, and which was also related to U.S. subprime 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.

The Singapore investment gives the Southeast Asian island-state 9 percent 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 percent 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.

"It’s a developing trend. Asian and Middle Eastern sovereign investors are cash rich and have a longer time horizon than the average market investor," said Omar Fall, analyst at ABN AMRO.

The latest writedowns mainly involved UBS’s holdings of risky "super senior debt" and of collateralized debt obligations (CDOs), said UBS"

Hmm… let’s see here now. Cutting the dividend to zero and paying 9% interest on the convertible notes. Yippee.

The funny thing is on the face of it  it actually looks good by comparison to the Citi deal–Chuck Prince’s old outfit is paying 11% on their notes!