small investors suddenly have the power in the asset-backed commercial paper market

Crawford feels investors' anger

TARA PERKINS AND BOYD ERMAN

Monday, March 31, 2008

MONTREAL and TORONTO — The small investors suddenly have the power in the asset-backed commercial paper market, and they're letting the big ones know it.
Individual investors packed rooms in Montreal and Toronto yesterday to tell the committee of big holders that's pitching a restructuring plan for Canada's frozen $32-billion commercial paper market that there's a lot of work yet to be done before the plan will pass a vote that small holders will dominate.

The meetings were sometimes testy, and investors didn't hide their anger, but committee chairman Purdy Crawford said he understands that the ABCP holders aren't just “venting” – they have serious demands and they are willing to use their clout to achieve them. Those demands include being bought out at 100 cents on the dollar, avoiding losses that other, bigger investors may be forced to take.

“If you have a result you want to achieve, you can't sit around and say ‘this is nice,' you have to put the cards on the table,” Mr. Crawford said.

He reiterated that he is “optimistic” a deal can be worked out to win the support of small investors and that “we're going to do what we can within reason” to help them.
There are believed to be more than 1,800 individuals stuck holding about $400-million of frozen paper, most of them clients of Canaccord Capital Inc., who can determine the fate of the restructuring plan because they far outnumber the big investors who negotiated the proposal. A vote will be held on April 25, and a majority of those who cast a ballot must be in favour of the plan for it to pass.

Canaccord is working on a plan to aid its clients, but nothing is settled, leaving the committee facing the prospect of heading west to Calgary and Edmonton today to confront yet more angry holders with no answers for their demands.

“I'm looking for a better solution than the one being offered,” Mark Wasserman, who put money into ABCP through Canaccord, said in an interview in Montreal.
Investors also took issue with the committee's presentation, which they said was tough to follow.
“I found your presentation interesting but totally incomprehensible,” Sandy Currie, an investor who said he holds about $205,000 of ABCP, told Mr. Crawford's team in Toronto. “Take it home, show it to your wives, see if they understand it.”

Once again, the issue of releases that would absolve all players in the restructuring of any legal liability drew the ire of investors.

“I am better off, in my mind, taking my loss today and exercising my legal rights against my bank,” said investor Hy Bloom, who attended both investor meetings yesterday. His two holding companies have filed a $12-million lawsuit against National Bank in Quebec Superior Court, alleging misrepresentation.


At times, the back-and-forth between the small investors and Mr. Crawford revealed the frustration that has built since the restructuring ordeal began.

“You cross-examined me long enough, sir, you can sit down now,” Mr. Crawford said to one questioner at a meeting in Toronto yesterday morning.

The meetings are being closely monitored by Ottawa. Yesterday, Liberal finance critic John McCallum said he had decided to postpone asking the House of Commons finance committee to hold hearings on third-party ABCP because he did not want to interfere in the process.
One person at the Toronto meeting, who asked not to be named, suggested it's unfair that individual investors are able to jeopardize the plan.

The company he represents has more than $30-million in third-party ABCP, and most of that is in its pension plans.

“I do have sympathy for these retail investors, but I also think that it is important to note that the institutional investors largely represent pension plans … ,” he said in an e-mail reply to questions. “If the restructuring plan fails and assets are sold at 50 cents on the dollar (if we are lucky), Canadian pension plans stand to lose well over $10-billion. That's in the pension plans of ‘the average Joe,'” he wrote.

© Copyright The Globe and Mail

UBS doubles subprime writedowns

ONNA CORAY

Tuesday, April 01, 2008

ZURICH — Swiss bank UBS AG on Tuesday reported more serious damage from exposure to the U.S. subprime crisis, saying it would post first-quarter losses of $12.1-billion and that it would seek $15.1-billion in new capital.

UBS Chairman Marcel Ospel said he would resign as Switzerland's largest bank expects write-downs of approximately $19-billion tied to U.S. real estate and related credit positions in the first quarter.

UBS write-downs have reached a staggering $40-billion in the past nine months, the largest reported by any bank to date.

With word Tuesday that Germany's largest bank would write down about $4-billion on subprime exposure, it was the latest indication of how far the severe plunge in U.S. housing prices and a credit crisis triggered by rising mortgage defaults has reached.

With the bank reaching out for additional capital, UBS shares rose sharply, trading up 6.51 per cent at 30.74 francs ($30.92) in Zurich. Traders said investors welcomed the capital hike and the departure of Mr. Ospel.

“I have always stated that I ultimately take responsibility for the bank's situation,” Mr. Ospel said.

“My willingness to stand for re-election for a further one-year term was based on my desire to lead UBS out of its current difficult situation,” Mr. Ospel said. “We have worked very hard and have been able to address the firm's most pressing problems, thereby laying the foundation for the long-term success of the bank.”

The bank said its move to raise capital through a rights issue that would be fully underwritten by four leading international banks and would enable it to remain “one of the world's strongest and best capitalized banks.”

“In the first quarter, UBS substantially reduced its real estate related positions through both valuation adjustments and significant disposals,” the bank said.

It said it would create a new unit to “hold certain currently illiquid U.S. real estate assets.”
“UBS is confident that these measures will deal effectively with the firm's real estate exposures and allow the bank to focus on strengthening its core operations,” the statement said.
Chief Executive Marcel Rohner said, “We believe this capital increase and the creation of a vehicle to separate problem assets from the remainder of our businesses will allow us to return to sustainable value creation over time.”

He said profits from most of the bank's businesses “remained acceptable in challenging conditions” during the first quarter.

“We have made further prompt writedowns and sales of our impaired U.S. real estate-related positions,” Mr. Rohner said. “We have reduced risk weighted assets and implemented measures to control costs and strengthen the structure of the firm.”

However, he said, UBS wants to avoid selling at “severely distressed levels.”
“With these measures we have created the basis to weather one of the most difficult periods in the history of the industry,” Mr. Rohner said.

The measures show the bank continues to trim risky assets. The bank said its exposure to U.S. subprime mortgage related positions declined to approximately $15-billion from $27.6-billion on Dec. 31.

The exposure to Alt-A positions — which are less risky than subprime loans — was reduced to $16-billion (10.1 billion euros) from $26.6-billion, it said.

The efforts at minimizing exposure will be accompanied by an undisclosed number of job cuts and a further tightening of risk.

The measures mean that UBS is now a restructuring stock, analysts at JP Morgan wrote in a note to investors.

“We conclude UBS is aiming to put a line below its risk-exposure problem and refocus on operational business,” JP Morgan's Kian Abouhossein said.

But Octavio Marenzi, head of financial consultancy Celent, said the UBS disclosures were “a clear indication that we are not out of the woods yet in terms of the credit crisis.”
“Indeed, the storm clouds are gathering ever more rapidly over the banking industry and, in particular, the U.S. banking industry, where most of UBS's losses originated from,” Mr. Marenzi said.

He predicted the U.S. banking industry is set to see its first contraction in overall revenues in more than forty years. “This will inevitably lead to staff reductions, and we expect to see the U.S. banking industry shed about 200,000 jobs in the coming 12 to 18 months,” Mr. Marenzi said.

Earlier this year UBS posted a 12.45-billion franc loss for the fourth quarter of 2007, after writing down 15.6 billion francs tied to U.S. subprime mortgages, and said it expected another difficult year ahead.

The bank posted a net loss of 4.38 billion francs for 2007, its first annual loss.
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