10:00AM New York – UBS surged 105% after it announced a right offerings plan to raise $15 billion and reported a loss of $12 billion

UBS, the second largest Swiss bank pre-announced larger than expected loss and plans to raise $15 billion through a rights offering. UBS acknowledged that clients have withdrawn money from its asset management and global wealth management divisions.

Banks in the U.S. and Europe continue to lag behind in getting a handle on the falling markets for mortgage securities, leveraged loans and collateralized loans. Few weeks ago Credit Suisse surprised investors with another mark down in loans and blamed it on employees for mispricing bonds.

UBS also replaced its long time chairman Marcel Ospel by its general counsel Peter Kurer who had been on executive committee since 2002.

UBS blamed current losses to a weak real estate market in the U.S. and noted in the media release posted on its Web site, “We have made further prompt write downs and sales of our impaired US real estate-related positions. We have reduced risk weighted assets and implemented measures to control costs and strengthen the structure of the firm. However, the environment remains difficult, and while we are committed to further substantially reducing our exposures we do not want to undertake sales of positions at severely distressed levels.”

UBS has been separating its distressed real estate portfolio of loans in a separate unit from its profitable core business. The newly formed unit will be wholly owned and financed by UBS and will hold these illiquid pool of mortgage loans that are trading at what UBS says “distressed level.”

UBS said that values of mortgage securities deteriorated further in the first quarter of 2008 and worsened substantially in March and added, it “has used all available relevant market parameters and indices to mark its positions.”

First quarter loss

The first quarter 2008 losses includes pre-tax results of approximately SFr 2.1 billion from global wealth management and corporate banking and a weaker pre-tax performance of approximately SFr 0.3 billion in asset management.

The investment banking unit is expected to record a pre-tax loss of approximately SFr 18 billion. This includes write-downs and losses of approximately $19 billion on U.S. real estate and related structured credit positions.

Equities and investment banking results are expected to be below from both first quarter 2007 and fourth quarter 2007. Costs, however, also fell.

Corporate Center's pre-tax result, minorities and tax expenses for the group accounted for profit of SFr 3.5 billion to SFr 4.0 billion. The result also includes technical accounting gain of approximately SFr 6 billion.

In the first quarter, UBS's exposure to US residential sub-prime mortgage related positions declined to approximately $15 billion from $27.6 billion at the end of fourth quarter, and the exposure to Alt-A positions was reduced from $26.6 billion to approximately $16 billion.

The asset disposals and effects of further write-downs lowered the exposure. However, auction rate certificate positions increased from $5.9 billion on 31 December to approximately $11 billion.

UBS will release its earnings on May 6th, 2008.

Rights offering of $15 billion

UBS proposed a rights offering to raise SFr 15 billion to replenish its depleted capital after a string of losses. The Board of Directors will ask shareholders to approve an increase in share capital from the current SFr 207,354,734.40 by a maximum amount of SFr 125,000,000 to a maximum of SFr 332,354,734.401 through the issuance of a maximum of 1,250,000,000 fully paid registered shares with a par value of CHF 0.10 each.

UBS hopes to seek an approval at special shareholder meeting on April 28. If approved, rights are expected to trade in Switzerland and New York in late May or early June. JP Morgan, BNP Parisbas, Morgan Stanley and Goldman Sachs will lead the underwriting team.

UBS raised SFr 13 billion from investors in Singapore and Middle East after it declared a loss in the third quarter. The bank hopes that the rights offering will increase its Tier 1 capital requirements to 10.7% from the current ratio of 6.9%.

The capital infusion may help the bank but there is no guarantee that the bank will not have more losses and may need to raise more capital in the future.