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December 11, 2007

UBS Writedown $10billion

by Stewart Douglas

Story link: UBS Writedown $10billion

Swiss investment firm UBS has announced that it has had to take a writedown of $10 billion in recognition of the extent of its sub-prime debt exposure, as the latest in a long line of investment banks and equity firms to announce substantial losses from the sub-prime sector collapse.

The investment bank announced yesterday that it would be forced to write down $10 billion in losses from its sub-prime exposure to reflect the now devaluation of its investment assets linked to the now defunct US sub-prime mortgage sector, which is greater than its initial forecast of $3.5 billion.

The US sub-prime sector dealt in mortgage loans to those with less than perfect credit histories, offering a high yield, high risk investment opportunity which was exploited by most investment funds across the globe.  As a result of high interest rates in the US, the number of defaults within this high risk category began to spiral leading to liquidity problems and substantially diminishing the value of the debt assets.

As a result of the writedown, the company said that it would more than likely realise a loss over the course of its trading year, as a result of the increase in the writedown from initial forecasts, which is now greater than its overall profit figures for the last year. 

The company today also today announced it has raised an additional $9.5 billion from a Singapore government fund, as well as a further $1.5 billion from a Middle Eastern investor, which analysts have suggested is a sign of scrambling at the bank looking to recoup funds in light of the forced writedowns over the course of this trading session.

It remains to be seen whether the investment bank can recover from its setback, and whether or not it can return to profitability over the course of the next year.


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