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:


<p><em>"UBS said its net subprime exposure at the end of December was $27.6 billion, down from $29 billion at the end of November. B<strong>ut 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</strong>.</em></p>

<p><em>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."</em></p>

<p><em>NY Times article: <a href="http://dealbook.blogs.nytimes.com/2008/02/14/ubs-to-take-137-billion-write-down/">dealbook.blogs.nytimes.com/2008/02/14/ubs-to-take-137-billion-write-down/</a>


</em></p>

Bloomberg article (more compehensive): <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=atU_BeFn_8J8&refer=home">www.bloomberg.com/apps/news</a>





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?





<img src="file:///C:/DOCUME~1/USER/LOCALS~1/Temp/moz-screenshot.jpg" alt="" /><img src="file:///C:/DOCUME~1/USER/LOCALS~1/Temp/moz-screenshot-1.jpg" alt="" /><img alt="" src="http://www.irvinehousingblog.com/wp-content/uploads/2007/03/reset.PNG" />

 

[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.





<a href="http://dealbook.blogs.nytimes.com/2008/02/15/ubs-stock-falls-after-bearish-citi-report/">dealbook.blogs.nytimes.com/2008/02/15/ubs-stock-falls-after-bearish-citi-report/</a>





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

<p>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.</p>

<p>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.</p>

<p>Its shares are now at levels not seen since mid-2003.</p>

<p><em><strong>“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.</strong></em></p>

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

<p>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.</p>

<p>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.</p>

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

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

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