The idea of a bid for Swiss bank UBS AG was unthinkable a year ago. But with its shares hovering near 10-year lows and facing persistent fears it may have to write down billions of dollars on subprime exposures, talk of a take-over is no longer taboo.
A bid for the world's largest wealth manager would signal a reversal of fortunes even more dramatic than the shock $18 billion in subprime writedowns Switzerland's flagship bank booked last year. This made it the European bank hit hardest by the credit crisis and has knocked billions off its market capitalisation as its shares have fallen from a year high of 80 Swiss francs last June to below 25 francs. "At anything under 30 francs a share, UBS is a clear take-over candidate," said one Zurich trader, who declined to be named.
UBS shares staged a partial recovery and were up 0.64 percent at around 2820 francs at 1450 GMT as the Dow Jones European banking index fell 0.01 percent. J.P. Morgan's surprise take-over of rival Bear Stearns underscores how the credit crisis has changed the rules of the game and made even the proudest vulnerable.
Another serious slip-up by UBS could be all it takes to tempt bargain hunters to bid for the bank - or in its worst-case scenario, see UBS face a take-over attempt by arch-rival Credit Suisse. UBS has seen its market value fall to below that of Credit Suisse for the first time ever following the subprime losses, with a market capitalisation of 50.1 billion Swiss francs, compared to 57.9 billion for Credit Suisse.
UBS has replaced nearly all its top management and the crisis has triggered soul-searching in Switzerland, home to a massive financial industry and to more cross-border investments than any other country. Swiss Finance Minister Hans-Rudolf Merz sought to bolster confidence in sector. UBS wrote down $18 billion in subprime debt in 2007 and owned up to having around $80 billion additional risky assets on its books.
UBS has admitted to misjudging markets before the subprime crisis and then failing to react adequately. Analysts expect the bank to write down an additional 10-20 billion francs in 2008 and some expect it to need to raise more money to shore up its capital. The bank has already raised 13 billion francs through a convertible bond sold to investors in Singapore and Saudi Arabia, and aims to raise around 6 billion francs more through various measures including issuing a stock dividend.
Doubts persist that UBS could ever fall prey except under the most extreme circumstances. Giving control to a foreigner, for example, would diminish its appeal as an independent bank snuggled in the safe haven of Switzerland. "You're not going to find any eager buyer in this market," said one analyst who declined to be named. "But as long as shares stay below 28 francs, they may have to consider some pretty dramatic alternatives, which could include splitting up the bank," he said.
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