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UBS sells subprime debt for steep loss

More circularly-funded asset sales: we’re just hearing news that UBS has sold $22bn of Alt-A and subprime for 68 cents on the dollar, raising around $15bn.

UBS:

UBS announced today that it has closed on the sale of approximately USD $15 billion of primarily Subprime and Alt-A US residential mortgage-backed securities to a newly created distressed asset fund that will be managed by BlackRock, the global investment management firm.

Marcel Rohner, Group Chief Executive Officer of UBS said, “Risk reduction remains a critical part of our ongoing financial restructuring and this sale is a big step towards further reducing our positions in this asset class. We continue to manage our legacy risks in a flexible and creative way in the best interests of our shareholders.”UBS had, of course, already confirmed that such a sale was in the offing, but none of the details were disclosed. Not only are the securities being sold at a discount it seems, but UBS is also providing three quarters of the financing for Blackrock to actually buy them (emphasis ours):

UBS sold positions with a nominal value of approximately USD $22 billion to the new fund for an aggregate sale price of approximately USD $15 billion. Based on UBS categorizations, the vast majority of the positions are Subprime and Alt-A in roughly equal parts and the remainder is Prime. The fund purchased the securities using approximately USD $3.75 billion in equity raised by BlackRock from investors and a multi-year collateralized term loan of approximately USD $11.25 billion provided by UBS.

There was also talk doing the rounds that the bank is set to put terms on its forthcoming rights issue: the $15bn offer could be priced at between CHF17.50 - CHF20 a share, said some reports. Shares are currently trading at around CHF30.

Related links
HBOS, UBS and Sants - Robert Peston, BBC
Boots made for walking…in circles - FT Alphaville

This entry was posted by Sam Jones on Wednesday, May 21st, 2008 at 12:37 and is filed under Capital markets. Tagged with . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. May 23   17:45 Posted by Anonymous [report]

    this bank is a a farce- they should end it now

  2. May 22   3:23 Posted by PrefBlog » Blog Archive » May 21, 2008 [report]

    […] On the sub-prime front there is (via FT Alphavill) that UBS is having a close-out special on some sub-prime UBS sold positions with a nominal value of approximately USD $22 billion to the new fund for an aggregate sale price of approximately USD $15 billion. Based on UBS categorizations, the vast majority of the positions are Subprime and Alt-A in roughly equal parts and the remainder is Prime. The fund purchased the securities using approximately USD $3.75 billion in equity raised by BlackRock from investors and a multi-year collateralized term loan of approximately USD $11.25 billion provided by UBS. […]

  3. May 21   18:11 Posted by CyberBob [report]

    Does anyone know if the mortgages assets are whole loans or securities or what the mix is? Thanks… mates.

  4. May 21   18:03 Posted by OJ@home [report]

    sounds more like Michael Caine than Michael Douglas…

  5. May 21   16:02 Posted by hedgehog [report]

    there must be a danger here of UBS disappearing up their own exhaust pipe - this will have to be made into a film at some stage I can already see Michael Douglas putting on his makeup

    ….”look what I got here guv - it’s a real bargain cost me a quid but am willing to sell it to you for less than 70p
    Haven’t got the money?
    No problem my mate ‘arry will be round this afternoon with the readies-
    he doesn’t know his AER from is elbow though so don’t bother askin i’m about interest rates or pay back terms.”

  6. May 21   15:29 Posted by taxloss [report]

    I did cite wikipedia. I suppose that could be construed as a banning offence…

  7. May 21   15:28 Posted by taxloss [report]

    3rd time lucky!

  8. May 21   15:28 Posted by Helen Thomas [report]

    Apologies taxloss,
    I have liberated you from our spam filter. Not sure what you did to upset it.

  9. May 21   15:27 Posted by taxloss [report]

    One more go…
    This deal looks dangerously close to being a VIE (Variable Interest Entity). If the equity in the fund becomes less than 10% of assets, then it would go straight back onto UBS’s balance sheet under FAS46R.
    With that amount of leverage, it would require a mark of about 57c on the dollar to breach that level.

    OTOH - Blackrock get to charge management fees on $15bn either way - so trebles all round!

  10. May 21   15:11 Posted by taxloss [report]

    Am I being filtered? I wondered how long it would take :(

  11. May 21   15:02 Posted by taxloss [report]

    http://en.wikipedia.org/wiki/Variable_Interest_Entity

    If equity falls to 10% of assets (IIRC) then they’ll have to take those loans straight back on the balance sheet.

    That would be a mark of around 57c on the dollar - not beyond the realms.

    Blackrock will still get 1% of total assets as a fee, so trebles all round there!

  12. May 21   14:54 Posted by pegnu [report]

    so - does this actual serve any legitimate purpose other than an apparently clumsy attempt at deception?

  13. May 21   14:51 Posted by taxloss [report]

    http://en.wikipedia.org/wiki/Variable_Interest_Entity

    If the equity in the fund gets too thin then it comes right back on UBS’s balance sheet. I think the threshold is 10%, which would be equivalent to a mark of 57 cents.

  14. May 21   14:04 Posted by raider [report]

    providing three quarters of the financing for Blackrock :

    I wonder about the terms of the financing (how ’bout negative interest rates….)

  15. May 21   13:40 Posted by grayder [report]

    Hi, is there anyway we can see the split between sub-prime and Alt-A?

  16. May 21   13:31 Posted by Harry Hindsight [report]

    plus ca change…..

  17. May 21   13:25 Posted by Anonymous [report]

    If these Son of SIVs blow up, things could get really interesting…

  18. May 21   13:15 Posted by TheWord [report]

    What scandalous nonsense all of these banks are involved in! It’s simply a variation on the SIV, with a facade of 3rd party ownership.

    The obscenity continues, regardless of what those who choose to look away would like to imagine is happening behind their backs.

This post is closed to further comments.