correct Slogger - i would call this abetting the shorters. Taking a large position to provide shorting liquidity to its hedge fund clients (including its own London trading desk)...
UBS doesn't always get a right though... i had to laugh at this:
It is finally D-day for Arrium, reports the AFR's Street Talk column. After four weeks of trading well under 48¢ a share, Arrium’s underwriter UBS will hand out the losses among its hedge fund clients from 9am this morning.
The broker made a last-ditch effort to save its sub-underwriters and sell 590.8 million Arrium shares worth $283.6 million. UBS was calling for bids from the 48¢ a share underwritten price but, unsurprisingly, the phones were hardly ringing off the hook. The asking price was 15¢, 45 per cent higher than Arrium’s close on Monday.
Arrium and its underwriter were not expecting any 11th-hour miracles on Monday night. While the book does not close until Tuesday morning, large losses were expected to be doled out on Tuesday.
For UBS, the best outcome would be if it has sub-underwritten the entire 590.8 million shares. Assuming about a 2 per cent sub-underwriting fee, it means $80 million or so in paper losses for the hedge funds.
But that’s still hardly a good outcome for UBS, its hedge fund clients or even Arrium, given the new owners of its stock.
The bank’s worst result would be if it were left holding a large chunk of Arrium paper. The next few days’ trading should show whether that’s the case.
As for Arrium, it is looking forward to getting on with life with a balance sheet $754 million better off. It has been crunched by a falling iron ore price this year, but reckons it is now better off than plenty of other iron ore juniors.
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