UBS rights issue seen unlikely: Morgan Stanley

By Andrew Hurst, European Banking Correspondent

LONDON (Reuters) - Swiss bank UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) faces more big writedowns on U.S. subprime-related exposure but is unlikely to need a rights issue to protect its traditionally high capital ratios, a top analyst at Morgan Stanley said.

UBS last week announced its first quarterly loss in five years after taking writedowns of 4.4 billion Swiss francs and warned there were likely to be more in the fourth quarter.

The bank's tier 1 capital ratio, which is one of the highest in the industry, fell to 10.6 percent at the end of September from 12.3 percent at the end of the second quarter.

"UBS chewed through 1.7 percent of Tier 1 in one quarter," Huw Van Steenis, head of European banking research at Morgan Stanley told the Reuters Finance Summit. "Our hunch is that UBS didn't take a bigger charge so as not to spook people with chewing through 2.5 percent in Tier 1 in one quarter."

Van Steenis said UBS's writedowns of its so-called supersenior exposure -- regarded as the part of its exposure least prone to default -- were not as aggressive as those of some of its peers in the United States.

"We've penciled in a further 6 billion Swiss franc writedown in the fourth quarter related to supersenior exposure," he added.

UBS said last week it was holding highly illiquid supersenior debt worth $20.2 billion.

"UBS told us they took 1.6 billion marks (writedowns) versus superseniors. If Merrill Lynch wrote them down 37 (percent), we estimate UBS wrote them down 10 (percent)," he said.  Continued...