As expected, UBS on Thursday announced the final terms of its $15.6bn rights issue:
The Board of Directors of UBS AG has determined the final terms of the public offering of 760,295,181 new shares, which will be subject to the subscription rights of existing shareholders (the “rights issue”)…
Shareholders will be allotted one subscription right for each existing share held. The exercise of 20 subscription rights will entitle the holder to subscribe for 7 new shares at a subscription price of CHF 21.00 per new share.
The terms are slightly better than those we were hearing about Wednesday but this is still a hefty issue at a significant discount - 31 per cent to be precise. UBS was down just shy of 3.5 per cent in Switzerland on Wednesday and is currently down 1.3 per cent. Not huge moves - probably reflecting the fact that when complete, the rights issue will have a significant positive impact on the bank’s Tier-1 capital ratios, bolstering it from 6.9 per cent to 11.8 per cent, according to Bloomberg.
But the interesting thing from UBS on Thursday isn’t really the rights issue at all, but the detail emerging about UBS’s $15bn subprime sale. A sale which is realising a $7bn loss - not a writedown, but an actual tangible permanent loss.
The instruments are being sold to BlackRock, but as mentioned before, UBS is itself supplying a $11.25bn loan to BlackRock to fund that purchase. All via a specially structured investment vehicle of course. UBS won’t have any equity in that vehicle, just senior debt. The upside for UBS is that it gets these assets off its balance sheet and frees up a load of capital hitherto tied down under risk-weighting rules.
UBS might, however, yet have something to worry about. Reader taxloss points out that the vehicle could be dangerously close to being forced back onto UBS’ balance sheet anyway under accounting rules. If Blackrock’s equity stake falls below 10 per cent of assets, then it will no longer be deemed to be the primary economic/controlling beneficiary, and UBS will have to consolidate the vehicle because it will become the primary beneficiary. For that to happen, with the current amount of leverage, wouldn’t require a such a big dip in prices in the fund.
Related links
UBS prices rights issue at deep discount - FT
