The Next Meltdown: Alt-A

[GavriloPrincip_IHB]

Swiss bank UBS announced its huge Q4 loss, including $27.6 billion in Subprime exposure at December 31. But the announcement also noted that UBS's exposure to Alt-A was almost as large: $26.6 billion. UBS has already booked a loss of $2 billion on Alt-A:

"UBS said its net subprime exposure at the end of December was $27.6 billion, down from $29 billion at the end of November. But the bank unveiled an additional $26.6 billion in exposure to so-called Alt-A mortgages, which are of higher quality than subprime loans but also considered risky.

The bank took a $2 billion charge on exposure to the Alt-A mortgages. UBS also took a charge of $871 million on credit protection bought from monoline bond insurers."

NY Times article: dealbook.blogs.nytimes.com/2008/02/14/ubs-to-take-137-billion-write-down/



Bloomberg article (more compehensive): www.bloomberg.com/apps/news

Irvine Renter has posted the Credit Suisse reset chart a few times. Unlike Subprime mortgages, which began to reset in large numbers in Fall, 2007, the vast bulk of Alt-A mortgages don't even begin to reset until 2009. What does it tell you that UBS is already booking losses for Alt-A?

 

[GavriloPrincip_IHB]

Apparently the Street thinks UBS will need to take up to $18 billion in additional write-downs. Citigroup estimated that UBS has $80 billion in aggregate remaining exposures. As noted above, at least $54.2 billion of that, by UBS's admission, is in US Subprime ($27.6b) and Alt-A ($26.6b) instruments.

dealbook.blogs.nytimes.com/2008/02/15/ubs-stock-falls-after-bearish-citi-report/

"Shares in UBS fell again on Friday as fears of more massive losses mounted after equity analysts at Citigroup said UBS could need up to $18 billion in additional write-downs in 2008, Reuters reported.

UBS, the world’s largest manager of money for the wealthy, has already written down $18 billion in losses in 2007 due to its exposure to U.S. subprime mortgages and linked assets, and wants shareholders to approve an emergency capital hike later this month.

Shares in UBS were down 3.6 percent at 36.14 francs in early trade, a day after falling 8 percent when it revealed it still had $80 billion in exposure to subprime loans and other debt.

Its shares are now at levels not seen since mid-2003.

“We estimate that the $80 billion remaining exposures could need 12-20 billion francs more markdowns in 2008,” said the Citigroup note, which was published on Thursday.

A UBS spokeswoman said “our exposures are disclosed,” but declined to comment on speculation of further write-downs to come.

Societe Generale cut its price target on the stock to 32 francs from a previous 40, while traders speculated the shares could bottom out at 25 francs.

Investment bank Exane BNP cut its investment rating on the bank’s shares to “underperform” from “neutral” and set a price target of 45 francs.

The new downgrades follow a spate of similar downgrades that came in the wake of UBS’s announcement on Thursday.

“Traders expect the shares will fall to CHF 25 in the near future,” said one note circulating among Zurich traders.

UBS shares have fallen over 29 percent so far in 2008 after falling 29 percent in 2007."