GIC didn’t participate in UBS stock sale

June 27, 2009
Singapore Democrats

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Dow Jones

GICThe Government of Singapore Investment Corp. did not take part in a stock sale by UBS AG (UBS), the Singapore sovereign wealth fund said Friday.

“GIC did not participate in the capital raising exercise as we are already a large investor,” spokesperson Jennifer Lewis told Dow Jones Newswires.

UBS, one of the hardest-hit banks in the global financial crisis, said late Thursday that it expects to raise CHF3.8 billion ($3.45 billion) in a stock sale. It said it will sell the shares to a few institutional investors.

The company said the capital raising is meant to increase confidence in UBS and the Swiss financial center, “which is consistent with the view of our regulators.” It said the stock sale was not related to any particular event.

GIC now holds about 6% stake in UBS after injecting CHF11 billion into the banking giant last year. The stake was originally around 9%, but got gradually diluted after UBS’s previous share offers and a move by the Swiss National Bank in October to put $60 billion into the bank.

At a glance: UBS woes continue through 2Q, seeks new capital
Dow Jones Newswires

THE EVENT: Swiss bank UBS AG (UBS) late Thursday warned that reversals of credit gains on its own debt and restructuring charges would push it to a second-quarter loss. The bank also launched a 3.8 billion Swiss francs ($3.45 billion) capital hike, adding that it continued to suffer cash outflows in its wealth and asset management businesses.


THE DETAIL: UBS – which has been hard hit by the financial crisis and shored up by the Swiss government, which is entitled to a roughly 9.3% stake in the bank – is offering new shares at CHF13 each, representing a 6.9% discount to its the closing price Thursday. It plans to sell the shares to a few large institutional investors.

The Government of Singapore Investment Corp., which holds about 6% in UBS after injecting CHF11 billion last year, said Friday it didn’t take part in the UBS stock sale.

GIC originally had a 9% stake in UBS but saw it gradually diluted after UBS’ previous share offers.


THE IMPACT: The stock sale is expected to increase UBS’ Tier 1 capital ratio to 11.9% from 10.5% on March 31, but because of a reduction in risk-weighted assets, the ratio will be even higher June 30.

The bank said the capital raising is meant to increase confidence in UBS and the Swiss financial center, “which is consistent with the view of our regulators.” It said the stock sale was not related to any particular event.


THE BACKGROUND: UBS was rocked by the financial crisis, suffering particularly in fallout from the U.S. subprime market, which prompted it to write down around $50 billion worth of assets.

It tapped fresh capital three times in 2008 including a CHF6 billion capital injection from the Swiss government last October, as well as assistance in ridding itself of toxic and illiquid assets.

On top of that, UBS has suffered heavy fund outflows from its wealth and asset management businesses, due in part to an ongoing attack on its traditional banking secrecy by U.S. authorities. Hopes are mounting that it will reach an out-of-court settlement with the Internal Revenue Service’s demand for details on 52,000 U.S. account holders who are suspected of dodging taxes before a Miami court adjourns to hear the case July 13.


STATE AID: The Swiss government welcomed the capital increase and said it continues to examine how and when it can best exit its investment in the Swiss bank.

The government owns an instrument that can be converted into a roughly 9.3% stake in Zurich-based UBS, which it has repeatedly indicated it seeks to offload.

The government, or a potential buyer of the instrument, agreed to hold off selling any shares before Aug. 4, which is when UBS reports second-quarter earnings. However, the government can convert the instrument into shares at any time.

“This temporary measure is meant to support investors participating in the cap hike, and thus contribute to its successful implementation,” the government said in a statement.


MARKET COMMENT: An analyst said UBS is probably choosing to take advantage of good market conditions now, expecting them to take a turn for the worse later.

“The surprising use of capital authorized at the April shareholder meeting likely has more to do with ‘currently favorable market opportunities,’ which would include higher risk appetite of institutional investors but also UBS’ stock price,” Zuercher Kantonalbank analyst Andreas Venditti said.


MARKET REACTION: At 0908 GMT, UBS shares were CHF0.11 lower, or down 0.8%, at CHF13.86, underperforming the Stoxx Europe 600 bank index, which was up 1.5%.

-By Digby Larner and Katharina Bart, Dow Jones Newswires; +33 1 4017 1748; [email protected]
(Costas Paris contributed to this item.)