Financial Analysis Of UBS AG Finance Essay

UBS AG is a diversified planetary fiscal services company, holding its chief central office at Basel and Zurich, Switzerland. In June 1998, Union Bank of Switzerland and Swiss Bank Corporation ( SBC ) completed the amalgamation announced six months antecedently. Just two old ages subsequently, UBS acquired the US securities firm house Paine Webber, greatly increasing the size and range of its concern. Then the new house set the seal on these accomplishments by proclaiming a individual trade name. In this visible radiation, UBS is both a new establishment and new trade name.

In the picturesque Swiss part of Valposchiavo, for illustration, one UBS subdivision traces its beginnings as far back as 1747. The nucleus constituents of today ‘s UBS day of the month back to the 2nd half of the 19th century. At the same clip, its history extends many coevalss into the past, peculiarly in Switzerland, the US and the UK. UBS is ranked 2nd universe ‘s largest plus director of private wealth, and is the second-largest bank in Europe, in both market capitalization and profitableness. With its major presence in United States UBS has its central offices located in New York City ; Weehawken, Private Wealth Management in New Jersey ; and Stamford, Connecticut for Capital markets, UBS ‘s has its retail offices throughout the U.S. , and has its presence in more than 50 states ( www.ubs.com ) .

UBS was force to turn to the Government of Singapore for fresh support after incurring a immense loss in 2007. After support, Government of Singapore Investment Corporation became the largest stockholder of UBS in 2007. UBS directors pledged to return fillips after a dramatic loss in November 2008. New fiscal assistance was expected from Swiss authorities after the UBS stockholders voted to reconstruct the jolted trust in UBS ( www.ubs.com ) .

Credit Suisse found a new crosstown challenger in the signifier of UBS which has evolved on a similar way. Both of them originated from Switzerland indulging in commercial and retail banking who purchased major investing Bankss in United States and both are being investigated by U.S. governments presently for assisting 17,000 American citizens to avoid revenue enhancements. Based on the order by the Swiss Financial Markets Supervisory Authority ( FINMA ) , UBS on 18th February 2009, instantly has agreed to supply the individualities of and account information of approximately 250 American clients to United States and besides agreed to pay US $ 780 million in the signifier of compensation and mulcts ( www.ubs.com ) .

Company Finance map:

hypertext transfer protocol: //chart.finance.yahoo.com/c/1y/u/ubs

Beginning: hypertext transfer protocol: //chart.finance.yahoo.com/c/1y/u/ubs

Modern companies need to raise finance from the capital market in order to put in the existent and intangible assets they need to gain net incomes. Their first precedence is to guarantee that they can beginning finance for both their short tally and their long tally demands in the most economical manner possible. Corporate investing is by its nature hazardous and frequently capital intensive ( Ryan, 2007 ) .

In order to warrant the usage of other people ‘s money a house needs to guarantee that the investing determinations it makes, taking into history its cost of capital, lead to an overall addition in the value of the house and hence its investors ‘ wealth. Alongside the job of sourcing finance at the cheapest cost, the house has to do certain that all the investing determinations it undertakes are ‘value adding ‘ . If they are non the house will non be able to warrant its being for really long and will happen itself out of concern ( Ryan, 2007 ) .

The ability to merchandise the fiscal claims of concern ventures has been known about and practised for centuries. In the modern epoch the standardisation of fiscal claims into homogeneous merchandising units has transformed the manner markets operate. Until the 1930s companies, for illustration, borrowed money from Bankss – but following the Wall Street Crash in the United States there was a sudden loss of assurance in the banking sector. As a consequence, companies started to rehearse what authoritiess had been making for some clip and sidestepped the Bankss traveling straight to loaners and offering them securitized debt in the signifier of bonds ( Ryan, 2007 ) .

Although modern fiscal mediators are wonder of efficiency, the function of traditional mediators such as Bankss as suppliers of debt capital to corporations has declined for decennaries. Alternatively, nonfinancial corporations have progressively turned to capital markets for external funding, chiefly because the quickly worsening cost of information processing makes it much easier for big figure of investors to obtain and measure fiscal informations for 1000s of possible corporate borrowers and issuers of common and preferable stock equity ( Megginson and Smart, 2006 ) .

The Five Basic Corporate Finance maps:

Although corporate finance is defined by and large as the activities involved in pull offing hard currency flows ( money ) in a concern environment, a more complete definition would stress that the pattern of corporate finance involves five basic maps:

Raising capital to back up companies operations and investing plans ( the external funding map ) ;

Choosing the best undertakings in which to put houses resources, based on each undertakings perceived hazard and expected return ( the capital budgeting map ) ;

Pull offing houses internal hard currency flows, its working capital, and its mix of debt and equity funding, both to maximise the value of houses debt and equity claims and to guarantee that companies can pay off its duties when due ( the fiscal direction map ) ;

Developing company-wide ownership and corporate administration structures that force directors to act ethically and do determinations that benefit stockholders ( the corporate administration map ) ; and

Pull offing houses exposures to all types of hazard, both insurable and uninsurable, to keep and optimum risk-return tradeoff and hence maximise stockholder value ( the risk-management map ) .

( Beginning: Megginson and Smart, 2006 )

UBS External funding:

When corporations are immature and little, they normally must raise equity capital in private, either from friends and household, or from professional investors such as venture capitalists. These professionals specialize in doing high-risk/high-return investings in quickly turning entrepreneurial concerns. Once houses reach a certain size, they may make up one’s mind to travel public by carry oning an initial public offering ( IPO ) of stock-selling portions to outside investors and naming the portions for trading on a stock exchange. After IPOs, companies have the option of raising hard currency by selling extra stock in the hereafter ( Megginson and Smart, 2006 ) .

Capital Budgeting

The capital budgeting map represents house ‘s fiscal director ‘s individual most of import activity, for two grounds. First, directors evaluate really big investings in the capital budgeting procedure. Second, companies can thrive in a competitory economic system merely be seeking out the most promising new merchandises, procedures, and services to present to clients. Companies such as Intel, General Electric, Shell, Samsung, and Toyota on a regular basis make immense capital spendings. The capital budgeting procedure interrupt down into three stairss:

Identifying possible investings ;

Analyzing the set of investing chances and placing those that create stockholder value ; and

Implementing and supervising the investings

( Beginning: Megginson and Smart, 2006 )

Hazard Management

Historically, hazard direction has identified the unpredictable “ act of nature ” hazards ( fire, inundation, hit, and other belongings harm ) to which houses was exposed and has used insurance merchandises or self-insurance to pull off those exposures. Today ‘s risk-management map identifies, steps, and manages many more types of hazard exposures, including predictable concern hazards. These exposures include losingss that could ensue from inauspicious involvement rate motions, trade good monetary value alterations, and currency value fluctuations. The techniques for pull offing such hazards are among the most sophisticated of all corporate finance patterns. The risk-management undertaking efforts to quantify the beginnings and magnitudes of houses risk exposure and to make up one’s mind whether to merely accept these hazards or to pull off them ( Megginson and Smart, 2006 ) .

Corporate Administration

Recent corporate scandals-such as fiscal prostrations at Enron, Arthur Andersen, WorldCom, and Parmalat-clearly show that set uping good corporate administration systems is overriding. Governance systems determine who benefits most from company activities ; so they set up processs to maximise steadfast value and to guarantee that employees act ethically and responsibly. Good direction does non develop in a vacuity. It consequences from corporate administration systems that hires and promotes qualified, honest people, and that motivate employees to accomplish company ends through salary and other inducements ( Megginson and Smart, 2006 ) .

Developing corporate administration systems present rather a challenge in pattern because struggles necessarily arise among shareholders, directors, and other stakeholder ‘s involvements. But seldom is it in the involvement of any single shareholder to pass the clip and money needed to guarantee that directors act suitably. If single shareholders conducted this type of inadvertence, they would personally bear all the costs of supervising direction, but would portion the benefits with all other stockholders. This is a authoritative illustration of the corporate action job that arises in most relationship between shareholders and directors ( Megginson and Smart, 2006 ) .

Bankruptcy and Corporate Financing Patterns

The more debt a steadfast uses in its capital construction, the less likely the house will be able to run into its debt service duties, and the more likely default will happen ( Benning and Sarig, p.347 ) . It is this default likeliness that introduces bankruptcy costs into capital construction. As argued by Van Horne ( p.268 ) , the presence of bankruptcy costs is an of import beginning of imperfectness in the markets for corporate financess. Under imperfect conditions, there are the administrative costs of bankruptcy, and assets may hold to be liquidated at less than their economic values ( Bekter, p. 56 ) . It is besides this inclination that Myers ( p.218 ) describes as the direct cost of bankruptcy. The deduction of the presence of bankruptcy cost in fiscal purchase is manifested more by the fact that debt-financing generates hazards. Not merely that, but it has been argued that for case that every funding determination comes with some hazard deductions on the value of the house ( Glen and Pinto, 1994 ) .

In U.S history the largest bankruptcy was eventually coming to an terminal. On April 20, 2004, MCI, Inc. Emerged with an proclamation that it had begun administering securities and hard currency to its creditors harmonizing to a court-approved reorganisation program. MCI ‘s main executive officer, Michael Capellas, heralded a new beginning for his company, which had filed for bankruptcy tribunal protection 21 months earlier-when the company was called WorldCom-after disclosing and $ 11 billion accounting fraud. At the clip of its Chapter 11 filing, WorldCom had assets numbering about $ 104 billion and debts of $ 32 billion ( Megginson and Smart, 2006 ) .

WorldCom shocked the concern universe when the company announced in June 2002 that it had fraudulently overstated $ 3.9 billion of disbursals as capital outgos, which had allowed it to book higher net incomes during the telecom roar old ages of 1998-2001. WorldCom main fiscal officer Scott Sullivan was fired the twenty-four hours the accounting fraud was disclosed, and his issue followed that of laminitis and long-time CEO, BernineEbbers, who had been forced out in April 2002. Over the following two old ages, more than $ 7 billion in extra accounting mistakes and frauds were uncovered, , conveying the entire misstatements to $ 11 billion, and in a March 2004 restatement of its 2001 and 2002 fiscal consequences, the company wrote away over $ 74 billion in antecedently booked net incomes and good will ( Megginson and Smart, 2006 ) .

Corporate Control Transactions

Changes in corporate control occur through several mechanisms, most notably via acquisitions. An acquisition is the purchase of extra resources by a concern endeavor. These resources may come from the purchase of new assets, the purchase of some of the assets of another company, or the purchase of another whole concern entity, which is known as a amalgamation. Amalgamation is itself a general term applied to a dealing in which two or more concern organisations combine into a individual entity. Oftentimes, nevertheless, the term “ amalgamation ” s reserved for a dealing in which one corporation takes over another upon the blessing of both companies ‘ boards of managers and stockholders after a friendly and reciprocally agreeable set of footings and conditions and a monetary value are negotiated ( Megginson and Smart, 2006 ) .

Statuary Amalgamation

A statutory amalgamation is a signifier of mark integrating in which the acquirer can absorb the marks resources straight with no staying hint of the mark as a separate entity. Many intrastate bank amalgamations are of this signifier.

Auxiliary Amalgamation

Conversely, an acquirer may wish to keep the individuality of the mark as either a separate subordinate or division. A subordinate amalgamation is frequently the integrating vehicle when there is trade name value in the name of the mark, such as the instance of PepsiCo ‘s amalgamation with Pizza Hut in 1997. Sometimes, separate “ tracking ” or “ mark ” portions are issued in the subordinate ‘s name. Sometimes, these portions are issued as new common portions in exchange for the marks common portions, as occurred when General Motors issued new Class E and Class H portions to get, severally, Electronic Data Systems and Hughes Electronics during the 1980 ‘s. Alternatively, a new category of preferable stock may be issued by the command house to replace the common portions of the mark every bit good ( Megginson and Smart, 2006 ) .

Consolidation

Consolidation is another integrative signifier used to consequence a amalgamation of two publically traded companies. Under this signifier, both the acquirer and mark disappear as separate corporations and combine to organize an wholly new corporation with new common stock ( Megginson and Smart, 2006 ) .

Covering with the Crisis

The amalgamation of the Union Bank of Switzerland and the Swiss Bank Corporation in June 1998 resulted in UBS development. The new company was named originally as “ Union Bank of Switzerland ” , but functionaries chose to name it as “ UBS ” as the name was colliding with United Bank Switzerland – a subordinate portion of the United Bank Limited, Switzerland. United Bank of Switzerland is no longer known for its name as it made its trade name name UBS like 3M. The carried over logo from SBC, which stands for assurance, security and discretion has remained with UBS.

With its acquisitions of Dillon Read in New York and S. G. Warburg in London, SBC had investing banking concern all over the universe before the amalgamation. Due to the Long-Term Capital Management crisis, in October 1998, the first president of the incorporate bank resigned which affected the Union Bank of Switzerland. After the acquisition of Paine Webber Group Inc. by UBS in 2000, it became the largest private client ‘s wealth direction company in the universe. A CHF 3.265 trillion assets was invested in wealth direction concerns, including the U.S. As the company began to run as one big house, all the concern group of UBS were rebranded under the UNBS name on the 9th June 2003. All major companies bought by Union Bank of Switzerland like UBS Paine Webber, UBSWarburg, UBS Asset Management and others were merely called “ UBS ” . With the retirement of the Paine Webber trade name UBS took a US $ 1 billion write-down for the loss of good will associated with as a consequence of the rebranding. www.ubs.com

In a study released on 01st April 2008, 15 billion Swiss francs ( US $ 15.1 billion ) in a new capital was seeked by Swiss bank UBS AG as it expected to post net losingss of 12 billion Swiss francs ( US $ 12.1 billion ) for the first one-fourth of 2008. Around 19 billion dollars on U.S. existent estate and related recognition places were expected to write-down as UBS was hit by U.S. Subprime mortgage crisis and losingss. Fitch Ratings and Standard & A ; Poor ‘s, and Moody are cut down the long term recognition evaluation of UBS in April 2008 to AA and Aa1 severally. A new capital of CHF 6 billion through mandatary exchangeable notes was announced by UBS which they had on the 16th October 2008, and was topographic point with Swiss Confederation. Transfer understanding of about USD 60 billion presently illiquid securities and assorted assets from UBS to a separate fund entity were made between the Swiss National Bank ( SNB ) and UBS ( www.ubs.com ) .

The 3rd one-fourth Group net net income was announced by UBS on 4th November which was in line with their 16th October pre proclamation, CHF 296 million standing with net net income attributable to UBS stockholders. A farther CHF 4.8 billion of write-offs and losingss on hazard places affected that one-fourth in addition on revenue enhancement recognition of over CHF 900 million and ain recognition of CHF 2.2 million. In an proclamation made on the 12th November 2008, UBS said that from 2009 there will be no more than one-third of any hard currency fillip paid out in twelvemonth it is earned with the remainder held in modesty. Top executives will hold to keep 75 % of any vested portions ; inducements would besides enthrone after three old ages on portions with portion fillip histories subject to “ malus ” charges. US $ 6 billion of equity was put into the new “ bad bank ” entity by UBS in November 2008 ; a benefit option was kept merely if the value of its assets were to retrieve. UBS construction guaranteed lucidity for UBS investors by doing an straight-out sale, which was indicated as a “ neat ” bundle by the New York Times ( www.ubs.com ) .

The caput of the Swiss National Bank ( SNB ) and Chairman Jean-Pierre Roth on Friday the thirtieth January 2009was quoted on Reuters as stating that the two best capitalised Bankss in the universe are UBS and Credit Suisse. In an proclamation made on the 09th February 2009 by UBS, said that it lost about 20 billion Swiss francs ( US $ 17.2 billion ) in 2008, which is the single-year biggest loss in the history of Switzerland. The committedness to each of the UBS concern divisions and scheme were confirmed by UBS Board of Directors and the Group Executive Board on the 10th February 2009. Probes associating to UBS U.S. cross-border concern are acquiring resolved by come ining into a deferred prosecution understanding with the US Department of Justice and a Consent Order with the US Securities and Exchange Commission. US $ 380 million represents vomit of net incomes from its cross-border concern out of US $ 780 million which UBS agreed to pay. And the staying represents the revenue enhancement sum of United States which UBS failed to keep back to the histories. The involvement, punishments and damages for unpaid revenue enhancements are included in the figures. UBS besides entered into an understanding with the Securities and Exchange Commission as portion of the trade in which it agreed to the charges of holding acted as an unregistered broker-dealer and investing advisor for Americans ( www.ubs.com ) .

Initiative taken

CHF 20.9 billion ( US $ 18 billion ) loss was posted by UBS AG on the 11th March 2009 which was stated in their revised FY 2008 study. It was said that UBS was “ highly cautious ” about the mentality of 2009. UBS announced in its Annual General Meeting held on 15th April 2009, it has programs of cutting 8,700 occupations in its return to profitability.UBS had to do about US $ 50 billion in write-offs and announce of 11,000 occupation cuts since 2007 due to the planetary fiscal crisis. UBS agreed to sell its Brazilian fiscal service concern, UBS Pactual, to BTG Investments for about USD 2.5 billion in a statement made on the April 21st 2009.UBS was taking to cut down its hazard profile and to go more profitable by the sale of the Brazilian concern. U.S. federal expansive jury charges were made on private banker Raoul Weil for which UBS officially cut all its ties on the 1st May 2009. Raoul had been suspended in November 2008 after he was indicated in correlativity to the revenue enhancement equivocation matter. A first one-fourth net loss of two billion Swiss francs ( USD1.75 billion ) was confirmed by UBS on May 20th 2009 which was less than ab initio expected. UBS restated its 2008 one-year study on the May twentieth 2009. A farther decrease in the net net income was announced by the bank of CHF 450 million, and CHF 269 million in decrease of equity and equity attributable to UBS stockholders ( www.ubs.com ) .

UBS strengthened its capital base by puting 293.3 million portions from bing authorized capital by taking the advantage of current market conditions. A little figure of big institutional investors were placed with the portions. In the position of the regulators it was consistent that this capital raising purposes at beef uping assurance in UBS and the Swiss fiscal Centre which is claimed by UBS. The 2nd one-fourth loss of CHF 1.4 billion ( US $ 1.32 billion ) was reported on the 4th August 2009. The Swiss authorities made a statement of selling its CHF 6 billion interest in UBS on the 20th August 2009, doing important net income ; the mandatary exchangeable notes of 332.2 million which it had purchased in 2008 to assist UBS unclutter its balance sheets of toxic assets ( www.ubs.com ) .