Additionally, UBS revised its outlook, saying it now expects to post a net loss attributable to shareholders in the fourth quarter, after having said earlier that it expects a profit overall. The bank said it was now possible that it will record a net loss for the full year.
Analysts had expected that the bank would be forced to write down its subprime holdings by up to $10 billion, but only few had forecast a capital increase and the entry of a big strategic investor.
UBS said that the Government of Singapore Investment Corp., or GIC, is investing 11 billion francs, while an undisclosed strategic investor in the Middle East is contributing two billion francs. Market participants speculated that this second investor could be Abu Dhabi Investment Authority, which had also invested in Citigroup Inc., or the government of Oman.
GIC will own around 9% of UBS following its investment, GIC Deputy Chairman Tony Tan said at a news conference in Singapore. GIC's investment in the Swiss bank is long term, the fund isn't looking for management control of the Swiss bank, he added.
UBS is issuing mandatory convertible notes worth 13 billion francs for these investments, which will pay a coupon of 9%. This is subject to approval from shareholders at an extraordinary general meeting in mid-February.
"Our losses in the U.S. mortgage securities market are substantial but could have been absorbed by our earnings and capital base," UBS Chairman Marcel Ospel said in a statement. "Nevertheless, it is important to always maintain a notably strong capital position to support the continued growth of our wealth management business, which is the largest generator of value to UBS shareholders."