TODAYonline

'Rebel' UBS shareholders

Alternative proposal put up to GIC's offer; to be voted on come Feb 27

Christie Loh
christie@mediacorp.com.sg

DISGRUNTLED UBS shareholders are threatening to crush the Government of Singapore Investment Corporation's (GIC) offer to pump money into the troubled Swiss bank.

Unhappy that the new foreign investor will receive favourable terms in exchange for a massive cash infusion to cover the bank's sub-prime losses, a shareholder has put up an alternative proposal to be voted on during a special meeting on Feb 27 in Basel.

Profond — a Swiss pension fund — wants existing investors such as itself to be the ones providing the 13 billion Swiss francs ($17 billion) lifeline via a rights offering, instead of tapping on the GIC and an undisclosed Middle Eastern party.

But this method, argued UBS' chairman Marcel Ospel in a letter released on Friday, had already been considered and found to be far from ideal for the bank's needs.

Under a rights offering, existing shareholders will have the option of buying new stock at a stipulated price within a specified time period.

This process, which involves getting regulatory approval and marketing the rights to shareholders worldwide, would have taken more than three months.

This "would not have created the certainty of an immediate commitment of fresh capital," said Mr Ospel.

In contrast, the deal with the GIC, which has agreed to fork out 11 billion Swiss francs for notes that will be converted into shares in March 2010, was sealed quickly.

It is also less dilutive, said UBS, because a rights offering may mean selling up to 87 per cent more new shares than selling mandatory convertible notes.

Mr Ospel added the bank felt it was "a valuable demonstration of confidence to bring in highly reputable, stable, long-term financial investors", with the GIC as the lead investor who will end up with 8.8 per cent of Europe's biggest bank by assets if the deal is sealed.

But not everyone sees it that way. When the capital injection plan was announced in December, an institutional investor criticised it as an "asymmetric treatment to the disadvantage of existing shareholders".

Reports also cited Actares, a Swiss-based shareholder group, as calling for votes against the plan, while shareholder advocacy group Ethos called for a vote on whether to conduct a special audit of UBS.

UBS says the special audit is unnecessary since the Swiss Federal Banking Commission has already initiated a probe into reasons that led to the bank's sub-prime exposure and subsequent writedowns.

Earlier this week, UBS surprised investors with a third round of sub-prime writedowns, bringing those to a total of US$18.4 billion ($26 billion), and resulting in the bank suffering a net loss of 4.4 billion Swiss francs last year.