UBS Says GIC Input Could Solve Capital Problems

by Stewart Douglas

Story link: UBS Says GIC Input Could Solve Capital Problems

Investment bank UBS has today announced that there will be no need for a fresh capital drive after receiving investment from the Singapore investment corporation, which has helped solidify its financial position in the wake of writedowns related to its own exposure to the ill-fated sub-prime mortgage sector.

After being forced to writedown some $10 billion in exposure to the sub-prime sector in accordance with accounting principles and legislation, the investment house had been thought to be in the market for raising finance in order to fund future investments and replenish funds and reserves.  However, following investment from the Government of Singapore Investment Corp (GIC) largely covering its losses, the bank has announced it will no longer be required to hunt for money.

“Thanks to the 13 billion Swiss francs in new capital, and the replacement of a cash dividend by a share dividend, we have sufficiently firmed up our capital base,” said executive Marcel Rohner.  He then went on to add that it is essential for the future of UBS that the shareholders don’t reject the buy in from GIC, which would provide the funds it so desperately needs.

Meanwhile, GIC has pledged 11 billion Swiss francs, which translates into a 9% equity stake and would make it the single largest shareholder in the bank. However the proposed move is not without its critics, with a proportion of existing shareholders unhappy about the concept of allowing foreign interests to play so prominently in the way in which the company is run and managed.

It remains to be seen whether the UBS shareholders will accept the deal and embrace GIC and the funds it has to offer, or whether there will prove more resistance along the path to raising that much needed cash injection for the equity firm to survive.