By Katharina Bart and Helene Durand

ZURICH/LONDON |
Wed Feb 22, 2012 10:54am EST

ZURICH/LONDON (Reuters) – UBS might struggle to attract big institutional investors for more loss-absorbing bonds it wants to sell, after investors voiced distaste for the structure and price of an initial $2 billion deal announced on Wednesday.

UBS’s new bonds are designed to help bolster the bank in tough times by absorbing losses. Their value can be written down if the bank’s common equity Tier 1 ratio — a measure of financial strength — falls below 5 percent or hits non-viability.

The bank, which needs to raise a total of roughly $16 billion to meet new capital rules, said on Wednesday it is weighing issues in other regions and currencies which are likely to exceed $1 billion in size.

UBS attracted $5.5 billion of demand from investors, which UBS said included private banks — which traditionally means wealthy clients — long-only asset managers, hedge funds and banks investing for their own portfolios, in Asia and Europe.

But they also drew sharp criticism from several potential institutional buyers, who said similar issues from UBS and other banks will be a tough sell.

The UBS issue is a closely-watched gauge of investor demand for subordinated deals with permanent write-down features as banks brace for tougher requirements on bank capital instruments.

“It’s clearly not an investor-friendly structure, there are lots of embedded options by the issuer and the regulator, and one is the non-viability option,” said Philippe Kellerhals, senior portfolio manager at London-based Cairn, an asset management and advisory firm.

“Another is the Basel III capital trigger: when that happens, investors in these notes get completely wiped out.”

Ratings agency Standard Poor’s estimates banks will have to raise about $1 trillion in capital to replace old hybrid instruments which no longer qualify as loss-absorbing under the Basel III reforms aimed at making banks more crisis-proof.

STRONG CAPITAL

Fixed-income specialists also criticized the pricing on the UBS bonds, which offer lower yield than senior notes currently on offer from Dutch cooperative Rabobank RABOO.UL.

UBS maintained that is happy with the issue’s reception, and that investors are “comforted” by the bank’s Tier 1 capital ratio of 14.1 percent under Basel 2.5, compared with the 5 percent trigger.

“The very competitive coupon of 7.25 percent for this 10-year benchmark size offering reflects UBS’s strong capital, liquidity, and funding position,” UBS’s financial head Tom Naratil said. UBS’s capital ratios are among the strongest of European banks.

The UBS issue comes one year after Credit Suisse (CSGN.VX) issued 6 billion Swiss francs ($6.6 billion) in so-called contingent convertible bonds, or CoCos, to existing shareholders and a further $2 billion of CoCos publicly. These bonds aim to absorb losses by converting to equity under certain conditions.

These new types of loss-absorbing bonds are a response to tough capital rules laid out by Swiss financial regulator FINMA after the financial crisis.

Unlike Credit Suisse’s bonds, UBS’s will not convert to shares if the trigger is hit, reflecting the bank’s desire not to dilute shareholders following repeated cash calls as it struggled under the weight of more than $50 billion in mortgage-writedowns during the subprime crisis.

UBS’s 10-year notes sold last week would trigger at a 5 percent common equity ratio.

That means the bonds would be written down permanently if the bank’s common equity Tier 1 ratio falls below 5 percent or if the bank is considered non-viable.

The Swiss regulator can trigger non-viability if it sees an impending collapse or bankruptcy of the bank.

Ratings agency Fitch assigned the notes a BBB- rating.

During the financial crisis, UBS accepted a government-backed rescue package in October 2008. Credit Suisse did not take state aid and raised capital privately.

($1 = 0.9107 Swiss francs)

(Editing by David Cowell)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/bVcpaTSbb0w/us-ubs-capital-idUSTRE81L0W320120222

By Christiaan Hetzner and Laurence Frost

FRANKFURT/PARIS |
Wed Feb 22, 2012 12:20pm EST

FRANKFURT/PARIS (Reuters) – General Motors (GM.N) and PSA Peugeot Citroen (PEUP.PA) are discussing a manufacturing alliance designed to stem losses in Europe and reduce production costs elsewhere, sources with knowledge of the matter said.

Talks between GM, the world’s biggest automaker, and European No.2 Peugeot are focused on sharing vehicles and parts rather than swapping stakes, according to the people. Any new shareholdings that emerged would be small and symbolic.

French Labor Minister Xavier Bertrand confirmed that the government had been informed about a possible “strategic partnership,” online newspaper La Tribune reported that the discussions had been taking place for months, and the news sent the French automaker’s shares soaring on Wednesday.

Peugeot confirmed talks but would not name the partner, and GM spokeswoman Kelly Cusinato said “We routinely talk to others in the industry but have no comment beyond that.”

Peugeot shares jumped as much as 3 euros, or 21 percent, and were 13 percent higher at 1524 GMT, the biggest one-day gain in three years, while GM was down 0.1 percent.

As of Tuesday’s close, Peugeot had declined 50 percent over the past 12 months – the worst performance on the 15-member Stoxx Europe autos and parts index .SXAP.

“This alliance would be a game changer for Peugeot in the medium term,” Natixis analysts said in a note to clients, raising their rating on the stock to “buy” from “neutral.”

While potential synergies have already been identified, Peugeot is treading cautiously to avoid building expectations after the 2010 failure of tie-up talks with Mitsubishi Motors (7211.T) in 2010.

Wholesale integration of Peugeot with GM’s European Opel division would be fraught with political obstacles, observers warn.

“The logical thing to do would be to close plants,” said London-based Bernstein analyst Max Warburton.

“But they’ve not been able to do it independently, and there’s no reason to think they could do it together.”

In his radio interview on Wednesday, the French labour minister said the government would seek to ensure any deal protected domestic jobs.

Like Peugeot, GM’s European Opel division already faces heavy restructuring to reverse losses compounded by the region’s slumping auto market and cut-throat price competition.

Peugeot’s core automotive division swung to a 497 million euro ($659 million) operating loss in the second half, while GM Europe’s $600 million fourth-quarter loss was little changed from the previous year’s.

Facing similar overcapacity problems and dependence on Western European buyers, Peugeot and Opel have little to offer one another in the region, according to Credit Suisse analyst Erich Hauser.

“We struggle to see how yet another ‘me-too’ cooperation with GM Europe on componentry will help address any of the fundamental issues,” he said.

The Peugeot-GM alliance under discussion includes shared manufacturing beyond Europe, the sources said. It would amount to more than another product-specific deal of the kind Peugeot already has with Ford (F.N), Toyota (7203.T) and BMW (BMWG.DE).

Peugeot was forced this month to put its profitable logistics business up for sale to help finance the overseas expansion it badly needs to compensate for sagging home markets.

But the company also halted factory investments in Brazil and India, ostensibly to save cash, and Chief Executive Philippe Varin said the Indian project may be opened to a partner.

Peugeot could draw a line under ongoing Latin American losses and strengthen its Asian foothold by sharing plants, vehicles and parts with GM in those regions.

“In return, Peugeot would offer its expertise in small petrol engines and vehicle chassis,” said Florent Couvreur of Paris-based CM-CIC Securities.

Peugeot has said the future of its small car plant in Aulnay, north of Paris, is in doubt after 2014 because of the increasing wage cost gap with imports. GM’s Chevrolet assembles its Aveo mini at a plant in Korea, a lower-wage export base with room for expansion.

Besides small cars, Peugeot has said it needs a new commercial van partner after Fiat’s (FIA.MI) announced exit from their Sevelnord joint venture in 2017.

Mirroring that situation, GM has been left in the lurch by Renault’s (RENA.PA) withdrawal of its Trafic van from the plant shared with its Opel Vivaro in Luton, Britain.

Fiat had last month fanned speculation of its own possible tie-up with Peugeot, with CEO Sergio Marchionne saying he would “certainly take a look” at the company.

But the French automaker has since reiterated its opposition to any tie-up that threatens the influence of the controlling Peugeot family – which holds almost one-third of its capital and half of the voting rights.

“The Peugeots want to keep control,” UBS analyst Philippe Houchois said. “Carving out GM’s European auto operations into a venture with Peugeot could be an elegant solution.”

($1 = 0.7539 euros)

(Additional reporting by Philipp Halstrick in Frankfurt, So Young Kim in New York, Jennifer Clark in Milan, Gilles Guillaume and Elena Berton in Paris; Editing by Carol Bishopric, John Mair and Helen Massy-Beresford)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/gO2thNNYvDY/us-psa-idUSTRE81L0I620120222

By Karen Freifeld

NEW YORK |
Wed Feb 22, 2012 11:17am EST

NEW YORK (Reuters) – JPMorgan Chase Co., Citigroup Inc., Bank of America Corp. and more than a half dozen other major banks are being hit with a new lawsuit over $949 million in residential mortgage-backed securities.

A summons was filed Tuesday by Sealink Funding Ltd, an Irish entity that oversees risky RMBS, in New York state Supreme Court.

Sealink has filed numerous other lawsuits against major banks over billions in residential mortgage-backed securities it bought.

New York attorney Joel H. Bernstein, who represents Sealink, said the new case is over “securities they have not sued for in the past.”

Sealink claims the purchases were based on faulty offering materials, including misrepresentations of underwriting standards. It seeks damages or to have the purchases rescinded.

The case is Sealink Funding Limited v. The Royal Bank of Scotland Group Plc, 650484/2012, New York state Supreme Court.

(Reporting By Karen Freifeld; editing by Mark Porter)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/p6GvNAMoRmA/us-sealink-rmbs-suit-idUSTRE81L1C820120222

By Lucia Mutikani

WASHINGTON |
Wed Feb 22, 2012 1:36pm EST

WASHINGTON (Reuters) – U.S. home resales rose to a 1-1/2 year high in January, pushing the supply of properties on the market to the lowest level in almost seven years in a hopeful sign for the housing sector.

The National Association of Realtors said on Wednesday existing home sales increased 4.3 percent to an annual rate of 4.57 million units last month, the fastest pace since May 2010.

It was the latest sign the housing market may be coming off the floor. While economists attributed some of the rise to unseasonably warm winter weather, they also said it signaled genuine improvement.

Sales were up across all four regions of the country, with the West recording the biggest gain — an 8.8 percent increase.

“At least some of the improvement in the last few months could have reflected milder winter weather, but for the most part, it seems that the housing sector may have turned the corner,” said Guy Berger, an economist at RBS in Stamford, Connecticut.

The tenor of the report was weakened somewhat by a sharp downward revision to December’s sales data to show only a 4.38 million unit sales rate rather than the previously reported 4.61 million unit pace.

A brightening economic outlook, marked by a strengthening labor market and buoyant factories, is giving the housing market some lift. Confidence among homebuilders is near five-year highs and they are breaking more ground on new housing projects.

Residential construction is expected to contribute to growth this year for the first time since 2005.

Robert Toll, executive chairman of luxury homebuilder Toll Brothers, welcomed that progress even as his company announced a surprise quarterly loss on Wednesday.

“Since the new home industry is coming off several years of historic low levels of production, we are encouraged by the recent improvement,” he said in a statement.

The data did little to lift sentiment in U.S. stock markets, which were down in early afternoon as investors fretted about a likely euro zone recession. Prices for U.S. government debt rose on concerns Greece might not be able to avert a messy default even with a fresh bailout.

INVENTORY DWINDLING

The U.S. housing market had been held back by an overhang of unsold homes, but steady sales gains are helping to whittle down supply.

The inventory of unsold homes on the market fell 0.4 percent to 2.31 million last month, the lowest since March 2005. That represented a 6.1 months’ supply at January’s sales pace, the lowest since April 2006 and down from 6.4 months in December.

However, inventories tend to fall in winter and the decline last month could also be reflecting delays in the process of bringing foreclosed properties to the market.

A supply of six months generally is considered ideal.

“We think the foreclosure process will accelerate, which will speed up the flow of distressed inventory. We expect supply to edge back to eight months this year,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York.

That would increase the downward pressure on prices. The median home sales price fell 2 percent to $154,700 in January from a year ago.

Other data on Wednesday showed demand for home purchase loans fell last week, despite mortgage rates holding near historic lows.

The Federal Reserve, which has suggested a number of ways other policymakers could step in to help the beaten-up market, is considering purchasing more mortgage-backed securities to drive mortgages rates even lower.

But some economists are skeptical that would do much good.

“I don’t think the problem in the mortgage market is high interest rates or availability of liquidity. The problem is lack of jobs and very strict lending standards,” said Sung Won Sohn, an economics professor at California State University Channel Islands.

Distressed properties, foreclosures and short sales, which typically occur at deep discounts, accounted for 35 percent of overall sales last month, up from 32 percent in December.

A third of pending existing home sales contracts were canceled, the NAR said.

(Editing by Andrea Ricci)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/sh75okfPfKI/us-usa-economy-housing-idUSTRE81F0UU20120222

By Ryan Vlastelica

NEW YORK |
Wed Feb 22, 2012 4:06pm EST

NEW YORK (Reuters) – Banks led stocks lower on Wednesday as the SP 500 stalled near a 10-month-high after signs of weak European business activity rekindled concerns about a recession overseas.

The Dow Jones industrial average .DJI was down 26.72 points, or 0.21 percent, at 12,938.97. The Standard Poor’s 500 Index .SPX was down 4.57 points, or 0.34 percent, at 1,357.64. The Nasdaq Composite Index .IXIC was down 15.40 points, or 0.52 percent, at 2,933.17.

(Reporting by Ryan Vlastelica; Editing by Kenneth Barry)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/ee3bymMCS-Y/us-markets-stocks-idUSTRE81K0CU20120222