Friday, June 26, 2009

UBS Still a Mess, AIG Ditto

UBS, Europe's poster-child for the most egregious financial and ethical performance during the credit crisis, has announced that it will raise $3.5 billion in a share sale and post yet another loss. The bank sold shares to a "small number of institutional investors" that somehow still think that this pig is a good investment. I'm not sure how many more billions the bank has to punt in order to finally discourage supposedly savvy investors from throwing good money after bad, but some folks just never give up. Even the recently highly optimistic Bloomberg can't think of anything more positive to say than "UBS decided to raise the funds to bolster confidence in the bank following record losses, client defections and a US probe into possible tax evasion by wealthy clients." Given that the noose has been pulled around UBS's tax evading neck, it's hard to imagine more clients aren't going to flee. I mean if you can't get a good tax shelter out of these guys anymore, what good is their money management advice? If they really know how to make money, don't you think their investment bank would stop pissing it away?

AIG will hold its annual meeting on Tuesday, its first with the US government as the controlling shareholder, and it should be a doozy or more likely a snoozefest. Among those expected to be in attendance are the three trustees who are overseeing the 80% government ownership of AIG and their six handpicked candidates who will form the majority on the new 11-member board. If you plan to attend, make sure to bring extra coffee. Meanwhile, the Fed announced a deal yesterday with AIG where it would swap $25 billion in debt for stakes in two of AIG's foreign life insurance units, leaving the beleaguered insurance firm with only $18 billion in debt with the Fed, chump change compared to the $84 billion the Treasury has plowed into the firm. Once again, the company is finagling out of paying interest on debt and swapping it into an equity stake in units whose values are ambiguous. If they were really worth $25 billion, or even more, than the company should just sell them to a private investor or hold an IPO to repay the Fed directly. AIG claims that it plans to IPO the units and that the Fed will get the first dollars from those sales, but it could take a significant amount of time before the Fed gets its money back, if it ever gets its money back. How we keep getting roped into giving AIG better and better deals I'll never understand. But then I've had a very hard time swallowing the leniency the government has shown to our financial institutions that were largely responsible for the financial meltdown.

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