UBS raises $3.5-bn in share sale, expects Q2 loss

Written by Bloomberg | Updated: Jun 28 2009, 04:32am hrs
UBS AG, the European bank with the biggest losses from the credit crisis, raised about 3.8 billion Swiss francs ($3.5 billion) by selling shares and said it expects a second-quarter loss.

The bank sold 293.3 million shares for 13 francs apiece to a small number of institutional investors, the Zurich-based company said in a statement late on Thursday. UBS declined as much as 3% in Swiss trading.

UBS decided to raise the funds to bolster confidence in the bank following record losses, client defections and a US probe into possible tax evasion by wealthy Americans. The company had further withdrawals from all of its money-management divisions in the second quarter. The Swiss central bank said last week that UBS needs to further increase reserves and cut assets.

When the regulator tells you to raise capital, you do it, said Andy Lynch, who helps manage about $170 billion at Schroder Investment Management Ltd. in London and holds UBS shares. The view was probably that markets are in a good shape for the time being, we dont know how its going to look in September, so lets take some insurance.

UBS declined 12 cents, or 0.9%, to 13.85 francs by 11:09 a.m. in Swiss trading. The stock fell 6.6% so far this year, compared with a 71% gain at Zurich-based Credit Suisse Group AG.

Oswald Gruebel, 65, joined UBS is February as chief executive officer to reorganize the bank and return it to profitability. The former CEO of Credit Suisse announced in April plans to cut 7,500 jobs and to save as much as 4 billion francs by the end of next year.

UBS said the second-quarter loss is mostly tied to reorganisation costs and charges on the companys own debt, while operating earnings improved from the first quarter on better market conditions. The bank is scheduled to publish second-quarter earnings on August 4.

The bank, the biggest manager of money for the wealthy, has been seeing outflows of client funds since the beginning of 2008, with customers withdrawing 240.9 billion francs through the end of March.

Investors need to see more evidence of a successful turnaround before buying shares, Derek De Vries, a London-based analyst at Merrill Lynch & Co who has a neutral rating on the stock, said in a note to clients. We cant be certain this will be the last capital increase at UBS.

In the US, lenders including Bank of America Corp and Wells Fargo & Co have raised more than $75 billion by selling shares or converting preferred stock into common shares since early May, when regulators demanded some of the banks bolster their capital.

The Swiss National Bank said last week that UBS and Credit Suisse need to increase the amount of capital they hold in relation to assets to withstand any further losses. The banks should aim for a so-called leverage ratio of at least 5% once the crisis is over, the SNB said. UBSs ratio was 2.56% at the end of March.

The capital increase is in accord with our expectations and increases the financial robustness of the bank, Nicolas Haymoz, a spokesperson for the SNB, said on Friday.

UBS has amassed more than $53 billion in writedowns and losses since the credit crisis began and had to raise about $34 billion before this capital increase from investors including the Swiss government to replenish reserves.