Dec. 10 (Bloomberg) -- UBS AG will write down U.S. subprime mortgage investments by $10 billion, the biggest such loss by a European bank, and replenish capital by selling stakes to investors in Singapore and the Middle East.

Europe's largest bank by assets plans to raise 13 billion Swiss francs ($11.5 billion) from Government of Singapore Investment Corp. and an unidentified Middle Eastern investor by selling them bonds that will convert into shares, Chairman Marcel Ospel said on a conference call with reporters today.

UBS rose 1.4 percent in Zurich trading on optimism writedowns are now out of the way. The bank may post the first full-year loss since the Zurich-based company was created through a merger a decade ago. UBS followed Citigroup Inc., the largest U.S. bank, in taking on strategic investors to bolster capital.

``UBS was quite clever this time to couple some extremely bad news with some good news,'' said Dieter Winet, who helps manage about $50 billion including UBS shares at Swisscanto Asset Management in Zurich. ``It's positive that capital is placed in firm hands. This will help restore trust in private banking and asset management and help UBS write new business.''

UBS shares rose 80 centimes to 58 francs, helping lift bank shares across Europe. The stock has fallen 22 percent this year, erasing more than 23 billion francs of the bank's market value.

Citigroup, Fortis

``My bet is that the UBS share price now has a very firm foundation to move materially higher over the next 12 months,'' said James Bevan, who helps oversee $10 billion as chief investment strategist at CCLA Investment Management.

Singapore's GIC, which oversees the island nation's foreign reserves of more than $100 billion, will invest 11 billion francs in UBS for a 9 percent stake. The Middle East investor will put in 2 billion francs.

New York-based Citigroup announced last month a $7.5 billion cash infusion from Abu Dhabi after record mortgage losses wiped out almost half its market value. Ping An Insurance (Group) Co., China's second-largest insurer, bought a 4.18 percent stake in Fortis for 1.81 billion euros ($2.7 billion).

``Because there's a lot of liquidity in those countries and those sovereign wealth funds, they'll be looking for investment opportunities,'' said Masafumi Oshiden, a Tokyo-based fund manager at BlackRock Japan Co. whose parent company holds $1.1 trillion in assets. ``The valuations have come down a lot.''

Selling Treasury Shares

UBS, based in Zurich, also plans to sell 36.4 million treasury shares that it intended to cancel, raising about 2 billion francs, and to replace the 2007 cash dividend with stock, boosting capital by 4.4 billion francs. The convertible bond sale and dividend change must be approved by an extraordinary shareholders meeting in mid-February, the bank said.

The collapse of the U.S. subprime mortgage market has led to about $76 billion of losses and markdowns at securities firms and banks this year.

UBS plans to raise a total of 19.4 billion francs through all the measures, which will improve its so-called Tier 1 capital ratio, a measure of financial strength, to more than 12 percent from 10.6 percent on Sept. 30.

Fitch Ratings lowered its long-term issuer default rating on UBS one level to AA from AA+, and said the bank's plans to boost capital prevented a ``more aggressive'' cut. The rating company maintained a negative outlook on the bank. Standard & Poor's affirmed its AA rating on UBS, with a stable outlook. Moody's Investors Service affirmed the bank's B+ financial strength rating and Aaa senior debt rating.

Societe Generale SIV

Societe Generale SA, France's second-biggest bank by market value, said today that its Tier 1 ratio will fall by 5 basis points after it agreed to bail out its structured investment vehicle by taking on $4.3 billion of assets. Paris-based Societe Generale said last month that its Tier 1 ratio was 7.7 percent at the end of September.

SIVs are being forced to cut assets as investors shun the short-term debt they used to finance purchases of higher-yielding securities because of concern about holdings related to U.S. mortgages. Societe Generale joins London-based HSBC Holdings Plc and Rabobank Groep NV in Utrecht, Netherlands, by taking on SIV assets.

UBS posted its first loss in almost five years in the third quarter after the subprime contagion led to $4.66 billion in markdowns on fixed-income securities and leveraged loans.

Bottom in November?

The bank's losses already cost the jobs of Chief Executive Officer Peter Wuffli, his finance chief Clive Standish and investment-banking head Huw Jenkins. Ospel told journalists on a conference call that there is ``no pressure internally'' for him to resign, though he doesn't ``expect or want'' a bonus for 2007.

The strategic investors expressed confidence in UBS's business model of combining wealth and asset management with investment banking, Ospel said. The bank doesn't rule out giving board seats to the investors, and already received indications of interest in its treasury shares.

Marcel Rohner, who was named CEO in July, CFO Marco Suter and Chief Risk Officer Joseph Scoby are scheduled to give analysts and investors a business update in London tomorrow.

Speculation about subprime writedowns in the past quarters has been ``distracting,'' Rohner said. Credit markets may have reached a bottom in November, when values fell to ``extremely bad'' levels, he told journalists.

`Draw a Line'

The bank was expected to write down about 2.6 billion francs in the fourth quarter, according to the average estimate of five analysts who published forecasts over the past month.

``This appears to be an attempt to draw a line under UBS's subprime woes and circumvent any contagion of sentiment to its wealth management businesses,'' Keefe, Bruyette & Woods Ltd. analysts Matthew Clark and Vasco Moreno said in a note to clients.

Investors added a net 30 billion francs at UBS's global wealth management and business banking division in October and November, the bank said.

UBS will cut assets and risk-taking at the investment- banking unit and mak it work more closely with the asset and wealth management divisions, Rohner said.

``An investment bank can and will incur losses,'' Rohner said. ``But it should never drag the whole group into loss-making territory. Wealth management clients don't like this uncertainty.''

Largest Purchase

Tony Tan, deputy chairman and executive director of Singapore's GIC, said that while it's impossible to say with ``absolute certainty'' there will be no further writedowns, ``we are very satisfied that UBS has taken a very conservative view with regards to their holdings.'' The investment is the 26-year- old GIC's largest single purchase, he said.

GIC is separate from Temasek Holdings Pte, Singapore's state-owned investment company, which also manages more than $100 billion of assets. Temasek is the biggest shareholder of London- based Standard Chartered Plc.

After the markdown announced today, the bank held about $16 billion in residential mortgage-backed securities as on Nov. 30 and about $13 billion in so-called super senior securities, or AAA-rated structured debt that gets paid back ahead of other similarly rated bonds in case of a default.

Investments in mezzanine collateralized debt obligations, part of the super-senior holdings, were cut to $7.8 billion from $14.2 billion, reducing the value of these bonds to 45 cents on the dollar, UBS said.

To contact the reporter on this story: Elena Logutenkova in Frankfurt at elogutenkova@bloomberg.net

Last Updated: December 10, 2007 12:16 EST