How ‘Material’ Were UBS’s Facebook Losses?

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A few days after Facebook (NASDAQ:FB) completed its rather rough listing on NASDAQ (NASDAQ:NDAQ). According to reports, analysts previously estimated that the four primary market makers for the IPO – UBS (NYSE:UBS), Citigroup (NYSE:C), Knight Capital and Citadel Securities – suffered combined losses to the tune of $115 million due to technical glitches in the exchange’s system. [1] Of this figure, UBS’s losses were pegged at $30 million by market speculators, though UBS has not disclosed the actual amount of losses other than to say that it was not material to UBS. However, on June 8, CNBC reported that the the losses to UBS may have been as large as $350 million and that the bank is considering legal recourse against NASDAQ. [2]

We maintain a $15 price estimate for UBS – almost 30% above the current market price. We attribute this considerable difference in price to the widespread pessimism towards European banks in the wake of a deteriorating sovereign debt situation in key Eurozone nations.

See our complete analysis of UBS here

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UBS’s losses stemmed from placing multiple orders to buy Facebook shares after it did not receive confirmation from NASDAQ for its first order to buy a million shares. [2] All purchase orders were eventually executed at the offer price of $38 and as Facebook’s share price started falling UBS was forced to sell shares at losses, with some blocks of shares sold below $30 a share. Interestingly, UBS remained tight-lipped about the loss, stating that the losses were immaterial for it to comment on them. [3]

We believe it is unlikely that UBS suffered losses as high as $350 million. First, a $350 million loss would be quite material given the bank’s net profit of CHF 827 million ($865 million) for Q1 2012 and hence the company would have had to report the losses to the market. We eagerly await the bank’s results for its equity trading business for the upcoming quarter to fully understand the impact.

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Notes:
  1. UBS losses on Facebook as high as $350 mln-CNBC, Reuters, Jun 8 2012 []
  2. UBS May Have Facebook Trading Loss of $350 Million, CNBC, Jun 8 2012 [] []
  3. UBS Says Facebook Cost Immaterial After $350 Million Report, Bloomberg, Jun 8 2012 []