Mar 6, 2008 - UBS $24B Alt-A Mortgage Fire Sale to Pimco
Marketwatch and others reported that UBS sold $24.1B of Alt-A mortgages to Pimco, a unit of Allianz, for 70 cents on the dollar, shocking markets.
Last month, UBS' just released year-end 2007 numbers valued these securities at 96 cents. The UBS annual report claimed that $21.2B of its Alt-A portfolio was rated AAA and backed by first lien mortgages.
UBS had disclosed the magnitude of its exposure in mid-February. Then, the immediate reaction was a rash of margin calls among other mortgage market participates. Liquidity was scarce, leading to asset sales at both Thornberg Mortgage and Peloton Partners. But UBS' own portfolio was not far behind.
Alt-A mortgage delinquencies had not risen as quickly as delinquencies on subprime loans. However, because of their perceived higher quality, the Alt-A structures have less of a buffer for investors. Once the fire sale begins, investors suffer more quickly.
UBS shares continued their long slide as analysis raised their estimates of UBS write-downs.
Around the globe, surprised holders of these previously deemed "safer" securities began marking down their portfolios 10 - 15% within a few days. Banks, brokers and funds all faced tighter liquidity.
Further confusing the markets, Pimco refuted the reports. According to CNBC, Pimco reiterated that it has been an active buyer of cheap assets amid the recent credit turmoil but that rumors it had bought $24 billion from UBS are “an exaggeration.”