BBC News has reported that the Swiss bank UBS has sold loans valued at about $22 billion to Blackrock for $15 billion. The deal represents a $7 billion loss ? almost one-third of their value ? for UBS on those assets. The assets UBS sold include sub-prime, prime mortgage-backed securities and Alt-A mortgage loans.
To add insult to injury, UBS is also lending Blackrock $11.25 billion to help it finance the deal. UBS said that the move was “risk reduction,” as a critical part of the firm’s ongoing financial restructuring after overexposure to sub-prime loans.
BBC’s business editor Robert Peston says that the cut-price sale of the assets were “not a notional accounting loss, but a real loss of hard cash.” “My brain can’t quite come to terms with the extraordinary financial implications of all this, even though the terms of the deal have been known for some time,” Peston added. “UBS has suffered a genuine, eye-wateringly large loss on the sale of assets it should never have accumulated, but is remaining exposed to those assets to the tune of $11.25 billion,” according to Peston.
Bloomberg.com has reported that UBS, in an effort to double the amount of new capital raised from investors, plans to sell new shares at a 31 percent discount from current value. The sale amounts to 15.5 billion Swiss francs or $15.1 billion.
To date, UBS has suffered the largest losses from the subprime crisis. After about $38 billion in subprime-related write-downs and 25.4 billion Swiss francs in net losses since July, the Zurich based bank is working to repair its balance sheet.
UBS said investors are entitled to 7 new shares for each 20 held. It will be selling 760.3 million new shares in the rights offering, which will start trading on June 13.
Banks worldwide have raised about $270 billion to shore up their capital after all the write-downs because of the subprime meltdown.