UBS Discounts $15 Billion Offering

The battered Swiss bank is the latest to dilute existing shareholders' positions to secure capital in the face of losses.
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Battered Swiss bank

UBS

(UBS) - Get Report

on Thursday said it would raise $15.5 billion through a deeply discounted rights offering.

The Zurich-based bank will sell the new shares at 21 Swiss francs, a 31% markdown from the roughly current price of 30.64 Swiss francs. Shareholders will receive one subscription right per share held, with 20 of the rights entitling the holder to buy seven new shares at the price of 21 Swiss francs.

The issue has been fully underwritten by

Goldman Sachs

(GS) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

Morgan Stanley

(MS) - Get Report

and

BNP Paribas

. The rights will begin trading on May 27 on the SWX Europe and the

New York Stock Exchange

.

Just a few weeks ago, UBS reported

staggering losses

for the first quarter due to the U.S. mortgage market crisis and confirmed plans to reduce headcount. The bank has already received cash infusions from the government of Singapore's sovereign wealth fund and an undisclosed Middle Eastern investor.

UBS on Wednesday

unloaded

$15 billion in subprime and Alt-A mortgage assets to private equity firm

BlackRock

(BLK) - Get Report

. UBS' pain was Blackrock's gain as the value on the assets was $22 billion and Blackrock only had to put up $3.75 billion in equity, while UBS loaned the remaining $11.25 billion.

Goldman Sachs analyst Christoffer Malmer trimmed his price target after Thursday's rights offering to 34 Swiss francs from 35 Swiss francs.

Derek Chambers of Standard & Poor's lowered his rating to hold from buy earlier this month. "We believe its plan to cut costs and headcount outside the troubled parts of the investment bank could adversely affect franchise value," he wrote.

Shares of the troubled bank have already plunged 54% for the year with 1.97 billion shares outstanding. The new issue will result in an additional 760 million fully paid-in registered shares as the bank opts for dilution over dissolution.

UBS, however, is hardly the first investment bank to resort to capital raising efforts dilutive to existing shareholders amid the credit downturn. Others include

Citigroup

(C) - Get Report

and

Merrill Lynch

(MER)

.

UBS shares were up 1.7% to $29.84 in trading Thursday morning on the NYSE. Rival Swiss bank

Credit Suisse

(CS) - Get Report

, which has managed to avoid the heavy losses that UBS has experienced, but still endured writedowns, was flat at around $52.11.