Shares in Swiss bank UBS AG fell on Thursday on speculation it had sold a huge portfolio of risky mortgages at a deep discount and planned to announce another massive write-down in the first quarter.
Analysts said they believed UBS had sold its Alt-A investments - US mortgages ranked between prime and sub-prime - to US bond manager Pimco for 70 cents to the dollar, taking a deep discount on a $25.7 billion (Dh94.3bn) portfolio.
Analysts also see the ailing bank making further write-downs on a massive Dh343.56 billion portfolio of repurchase agreements as it rushes to cut its exposure to the capital markets in general and to risky assets in particular.
While the Alt-A sale would help free UBS of some of the uncertainty that has dogged its share price, it could come at a steep price and force additional losses. Any losses resulting from repricing its repo portfolio amid turbulent markets may, however, introduce new doubts about more losses lying in wait.
"UBS may choose to sell down its workout book of mortgages, taking larger upfront losses to reduce uncertainty on capital ratios," Morgan Stanley said in a note to clients.
UBS declined to comment.
UBS shares were down 3.3 per cent at 31.18 francs, after touching a new five-year low of 30.88 francs, more than the 1.22 per cent fall in the DJ Stoxx European bank index.
Analysts at JP Morgan said they now expected UBS to write down Dh15.8 billion in total assets in the first quarter in write-downs, as a result of the Alt-A sale.
Merrill Lynch analysts said potential further write-downs at UBS could total $21 billion.
Analysts at Morgan Stanley said they had raised their worst-case potential loss estimates for UBS to $15-25 billion from previous estimates of $10-15 billion as a result of any Alt-A sale and repo repricing.
Analysts at bank Exane BNP Paribas said the Alt-A sale, if confirmed, would weigh on shares, as would reputational damage to the franchise.
"Worries on the eventual damage stemming from the bank's fall from the once world-class wealth management franchise as well as uncertainty on the actual value of the toxic securities will inevitably continue to weigh on the stock price," Exane BNP Paribas said in a note to clients. (Reuters)
UBS shares sink on write-down talk