UBS: Waiting for the CDO Shoe to Drop

UBS had over $24 billion in gross CDO exposure at the end of October –

much more than any other bank bar Citi. Yet its writedowns to date amount to

just $3.1 billion, or 13% of that exposure. By contrast, Citi has written down

35% of its exposure, Merrill wrote down 31%, and Wachovia wrote down 38%. The

conclusion, to Citibank analyst Jeremy Sigee at least, is clear: it’s only a

matter of time until the next shoe drops and UBS

takes a writedown of $12 billion or so. Sam Jones reports:

Clearly, UBS are not marking their assets at current market prices, and are

still heavily relying on marked to model prices. Consider also the fact that

many of the CDOs UBS arranged and sponsored have been some of the worst hit

– like the appropriately named Vertical Capital, a CDO whose AAA debt was

slashed 14 notches to junk in one fell swoop.

European banks are often slower to take losses on soured assets than their

US counterparts. But there’s surely a lot of pressure on UBS to come clean on

the CDO front now: otherwise, no one will trust its balance-sheet reports for

the foreseeable future.

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