More UBS pain seen as shareholder meeting nears

By Douwe Miedema, European Wealth Management Correspondent

ZURICH, March 28 (Reuters) - Shareholders of subprime-struck Swiss bank UBS (UBSN.VX: Quote, Profile, Research) are likely to vote on another capital injection at a meeting in April, and markets see it as a near certainty the bank may need further credit writedowns.

A normally mundane item -- the invite to the meeting, which the bank has to get to shareholders on Thursday at the latest -- will be closely scrutinised, with talk swirling the bank may break up its business or sell out to a rival.

A mortgage-related credit derivatives book now worth some $80 billion has already caused $18 billion in writedowns and a 4.4 billion Swiss franc ($4.41 billion) 2007 net loss -- yet markets see further hits as a near certainty.

"While we do not rule out M&A ... we struggle to see how UBS could sell its investment bank or sub-IPO it currently. But, the worse problems become, the more this unlikely outcome may need to be considered," Morgan Stanley said in a note.

UBS may need to write down dozens of billions more on the value of credit assets, analysts are saying, with numbers ranging between $11 billion up to $25 billion.

UBS pushed through a 13 billion franc capital increase at an emergency shareholder meeting in February, selling some 9 percent of its business to the Singapore government and a smaller stake to an unnamed Middle-East investor.

Smaller shareholders at the time said it was unfair that they could not participate in a mandatory convertible bond -- which pays a 9 percent coupon -- issued to the two investors, and were also unhappy the issue diluted earnings.

Swiss media were speculating that Swiss pension fund Profond would ask for another capital increase this time round, but that the UBS board would recommend raising authorised capital instead, giving it more flexibility.