UBS
New trouble
The crisis-hit Swiss Bank in which Singapore has substantial
interests runs into fresh woes.
Jul 25, 2008
For
Singapore state investments in Western banks, it never rains,
but pours.
As values
declined by more than US$10b in its banking ventures in
US and Europe, another trouble is on the horizon.
The
$11b investment of the Government Investment Corporation
(GIC) in UBS, Switzerland's biggest bank, is facing another
major uncertainty, this time from the US Government.
The
attorney general of New York yesterday accused UBS of consumer
and securities fraud, saying the bank misled investors when
it sold them auction-rate securities, according to the International
Herald Tribune..
Auction-rate
securities are preferred shares or debt instruments with
rates that reset regularly, usually every week, in auctions
overseen by the brokerage firms that originally sold them.
But
the US$300bb market for these instruments collapsed in February,
trapping investors who had been told that they were safe
and easy to cash in.
Even
as a senior executive at UBS called the market "a complete
loser," the bank continued to pitch the securities
as short-term, liquid investments, according to the civil
complaint filed by Andrew M. Cuomo, attorney general of
New York.
At the
same time, seven executives at the bank sold their personal
holdings of the securities, which totaled $21 million, to
avoid losses, according to the complaint.
"Once
they knew the auctions were failing, they removed their
personal money and corporate money from the auctions and
were still bringing consumers into the auctions," Cuomo
said.
"Now
people have their funds locked up in a way they can't access
them."
The
Tribune report said UBS halted the auctions of these securities
on Feb 13, leaving more than 50,000 UBS customers holding
about US$37b in the investments, according to the complaint.
These
investors - city governments, companies, individual investors
- remain unable to sell them in many cases.
UBS
has offered to lend its customers up to 100 percent of the
value of the securities until liquidity returns. Cuomo has
asked the bank to return the full value of the securities
to investors in cash.
The
bank rebutted Cuomo's accusations. "We will vigorously
defend ourselves against this complaint," UBS said.
"It
is frustrating that the New York attorney general has filed
this complaint while we have been fully engaged in good
faith negotiations with his office to bring liquidity to
our clients holding auction-rate securit
The
Government Investment Corporation (GIC) holds US$11b of
convertible notes that will pay it 9 per cent a year for
two years.
At the
end of the period it has to convert these Notes into shares,
which could results in GIC holding 9 percent of UBS Bank.
By
Seah Chiang Nee
