Merrill, UBS face further subprime fallout

Merrill Lynch is expected to suffer $15 bn (EUR 10.1 bn) in losses stemming from soured mortgage investments, almost twice the company's original estimate, the New York Times reported Friday. The losses are prompting the company to raise around $4 bn in coming days from an outside investor, the newspaper reported on its website. The bank is due to disclose the huge write down when it reports earning next week. The loss exceeds the $12 bn hit that many Wall Street analysts had forecast.

The Merill Lynch writedown has prompted Swiss bank UBS to issue an appeal to its shareholders in advance of an expected stormy shareholder meeting on February 27, according to the Irish Independent. In the letter, the bank said that ‘it cannot predict the final impact of the subprime crisis but that a new capital injection would strengthen its position as it called on shareholders to support its emergency capital hike’.

The Swiss bank, which has been one of the biggest casualties of the collapse in the US subprime mortgage market, is expected to seek approval for a capital increase, resulting in the sale of a 9% stake to the Singapore government and around 1.5% to an unidentified Middle East investor. UBS said it had decided against undertaking a rights issue to raise capital on the grounds of cost, complication and time.

‘During 2008, the environment for financial markets, especially in the US, is uncertain, and we need to manage through this period from a position of financial strength,’ the bank said in a letter to shareholders dated January 10.


In December, UBS announced a new $10 bn writedown on its subprime-related exposures, which came on top of an earlier charge of $4.4 bn on UBS's risky subprime exposures.