UBS AG Monday said that two strategic foreign investors committed to inject capital worth 13 billion Swiss francs ($11.5 billion) as part of a broader move to strengthen capital as the Swiss bank announced a further $10 billion in write-downs on subprime holdings.
The bank said it was now possible that it will record a net loss for the full year.
UBS is issuing mandatory convertible notes worth 13 billion francs for these investments, which will pay a coupon of 9%.
Beyond the investments from these two parties, UBS plans to sell treasury shares and replace its 2007 cash dividend with a stock dividend, boosting capital by 6.4 billion francs.
9% while 3-month Treasuries are barely yielding 3%!
That's like going down the pawn-shop to borrow from Fat Tony.
And a stock dividend is less than worthless.
Before the stock dividend, each investor owns a certain fraction of the company. After the dividend, ta-daa, they own the same fraction.
It's like your mom cutting a cake into two pieces, and saying, "Now you have double the cake."
Watch out,
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