GIC to retain holdings in Citigroup and UBS

The Government of Singapore Investment Corporation (GIC) says it will maintain its investments in Citigroup and UBS, despite the gloomy outlook for Western financial institutions.

This comes days after news that Temasek Holdings had sold its stake in Bank of America (BOA), resulting in an estimated loss of several billion dollars. GIC currently has an 11 per cent stake in Citigroup, while its stake in UBS amounts to about nine per cent.

Observers say UBS and Citigroup have significant holdings in Asia and other high growth regions, which could recover more quickly from the downturn. And this could benefit GIC in the long term.

Arjuna Mahendran, Head of Asia Investment Strategy, HSBC, said: "By investing in these two very large investment banks, an investor who has a strategic holding in the equity of those banks would perhaps have access to the deal flow that emanates from their investment banking operations. And that is a huge positive if you are running a large sovereign wealth fund."

UBS Said to Raise Bankers’ Base Pay by 50% After Bonus Cuts

May 15 (Bloomberg) -- UBS AG, the European bank with the biggest losses from the financial crisis, plans to boost salaries for senior bankers by an average of 50 percent to stem defections, three people with knowledge of the matter said.

The salary increase would apply to managing directors in investment banking, fixed income and equities worldwide, said the people, who declined to be identified because the matter is confidential. Less senior bankers, including associate directors and executive directors, may also get raises, they said.

UBS cut its bonus pool by 78 percent in January after amassing the biggest loss in Swiss corporate history in 2008. The bank came under pressure from government officials to slash variable pay after the Swiss state provided capital to UBS and helped shift hard-to-trade assets off its books. Bank of America Corp., which bought Merrill Lynch & Co., said in March it might raise salaries as a proportion of compensation.

“If the base goes up, it’s because bonuses are going down,” said Jason Kennedy, a London-based investment-banking recruiter. “It’s the same shrinking pie, you’re just stealing from Peter to pay Paul.”

Managing directors at the Zurich-based company currently earn about $190,000 to $250,000 a year in base pay, Kennedy said. Executive directors and directors earn from $150,000 to $200,000, he estimated.

To help retain senior bankers, UBS set aside about 900 million Swiss francs ($811 million) for bonus payments over the next three years in a plan to tie compensation to longer-term profitability. The payments will depend on both the bank and the employee’s division being profitable, and on UBS accepting no further capital from the state, the company said in February.

New rules will make UBS smaller

The Swiss National Bank (SNB) says that new capital requirements will reduce the balance sheet of UBS, Switzerland's largest bank.

Executive board member Thomas Jordan, referring to last year's rescue package for UBS, told a panel discussion in Biel that lessons had been learned.

"We want a bank that is clearly smaller," he commented.

UBS was forced to write down about $50 billion (SFr55.14 billion) as a result of the subprime mortgage crisis in the United States and was bailed out by the Swiss government and the SNB, the country's central bank.

During the same discussion, the director of the Swiss federal financial administration, Peter Siegenthaler, highlighted the importance of new regulation in the banking sector.

"It is important that the regulator Finma [Swiss Financial Market Supervisory Authority] adjusts the framework in a way that forces the bank to reduce risks," he said.

Finma has given the banks until 2013 to meet the new rules, which also include a nominal cap on a bank's debt level regardless of the risks involved.

swissinfo.ch and Reuters

Stocks Gain on Stress Tests, Treasuries Rise

May 8 (Bloomberg) -- Stocks gained around the world as Federal Reserve Chairman Ben S. Bernanke said a review of banks’ health “should provide considerable comfort” and a report showing fewer job losses than forecast signaled the worst of the recession is over. Treasuries and oil gained. The dollar fell.
Citigroup Inc

Stress Test

The official results of the US stress-tests on 19 of the nation's largest financial institutions will be officially announced when the US equity markets close Thursday.

The banks which are required to raise additional capital will be given a month to provide the US Treasury and the Federal Reserve with their plans. The capital will need to be raised within a further 6 months. US authorities are hopeful that the firms will be able to raise the capital privately, either through new stock offerings or converting preference shares to common equity.

Another alternative is to sell assets to beef up the balance sheet. Although clearly not official yet, detailed below are what the media is claiming are leaked details of the results of the tests:

American Express - no capital required (Bloomberg)

Bank of America - $33.9bn (The New York Times)

Bank of New York Mellon - no capital required (The New York Times)

Capital One Financial - no capital required (The New York Times)

Citi - $5 - $6bn (The New York Times)

GMAC - $11.5bn (Reuters)

Goldman Sachs - no capital required (Bloomberg)

JPMorgan Chase - no capital required (The New York Times)

MetLife - no capital required (Bloomberg)

Morgan Stanley - $1.5bn (The Wall Street Journal)

Wells Fargo - $15bn (Bloomberg)

Regions Financial is also thought to be required to raise additional capital, but the amount has not been disclosed (The Wall Street Journal).

UBS Headcount Cuts

The Financial Times reports that UBS's wealth management unit is to bear the brunt of the 8,700 job cuts the bank aims to make by the end of next year.

According to the newspaper, some 4,000 wealth management jobs are likely to go, many of them in the US and Switzerland. The investment bank, which has already seen headcount fall by around a third since its 2007 peak, is likely to suffer some 2,500 additional job losses, while 500 staff in asset management and another 500 in the bank's corporate centre in Zurich also face the axe.

UBS reports Q1 loss of CHF 2.0 bln

UBS reports Q1 loss of CHF 2.0 bln; quarter-end BIS tier 1 ratio of 10.5% Co reports Q1 net loss attributable to shareholders of CHF 1,975 mln.

Losses were driven primarily by risk positions in businesses now exited or in the process of being exited by the Investment Bank. Results include a CHF 0.6 bln goodwill impairment charge related to the announced sale of UBS Pactual.

Net new money outflows totaled CHF 23.4 bln for Wealth Management & Swiss Bank; Wealth Management Americas reported net new money inflows of CHF 16.2 bln; net new money outflows slowed to CHF 7.7 bln in Global Asset Management

Capital and balance sheet:
Bank reports BIS tier 1 ratio of 10.5% and BIS total ratio of 14.7% at quarter-end; pro-forma BIS tier 1 ratio of 11.0% including the effect of the announced sale of UBS Pactual.

Total risk-weighted assets under Basel II declined 8.1% during the first quarter to CHF 277.7 bln.

As announced on 15 April 2009, operating expenses expected to decrease by CHF 3.5 to 4 bln by the end of 2010.

Outlook: Co notes there has been an improvement in market sentiment during the first quarter, with a strong rebound in global stock market indices since early March, but the credit markets improved only partly and trading in complex financial products remains illiquid. The markets continue to be unsettled, and UBS remain cautious on the immediate outlook for UBS.

The strong influence that government policy has on the market environment was clearly demonstrated in the first quarter as investors became less risk averse. However, the real economy has continued to deteriorate, and this is expected to have negative implications for credit-related provisioning in coming quarters.