No wonder the Bank of International Settlement, the so called central banks’ central bank, sees the credit crunch continuing past March next year.

Last night’s surprise $US10 billion write-down and $US11.5 billion capital raising by a desperate UBS – Europe’s biggest bank by assets – is another sign of the depth of trouble facing the world’s biggest financial institutions. Then, in the US, the country’s biggest bond insurer, MBIA received a staged $US1 billion cash injection from a buyout fund and a planned share issue to preserve its triple A rated status, which would enable it to remain in business.

MBIA’s bail out came a month after France’s biggest bond insurer was rescued by two shareholders in its banking parent with a $US2.7 billion recaptalisation.

The bailouts are comforting for markets, but they confirm the immediate outlook will be bleak: “saved” banks do not lend, they conserve capital.

That’s why the BIS judgment, which is based on the way forward interest rate spreads have widened in interbank money and credit markets, is spot on as it is the best placed of financial groups in the world to judge the impact of the subprime mess and credit crunch on bank activity.

In short, except for areas like complex options and foreign exchange trades which are a form of “insurance”, the third quarter saw banks slash lending, selling bonds, share issues of all types and other activities which required some sort of credit assessment or judgment.

The BIS is not saying the crunch will ease after next March, just that forward interest rate and credit market spreads are sending the message that the tightness will continue past then.

“Such forward spreads shifted upwards for horizons extending well into 2008, and the shape of the term structure beyond the turn of the year was consistent with investors anticipating tensions to remain high in money markets for an extended period of time.”

In the conservative words of the central banks, “extended period of time” is more than a quarter.

But of all the write-downs and rescues so far seen around the world, nothing has approached the combined size of last night’s $US25 billion-plus series of transactions from UBS.

While the bank’s management said it wanted to “clarify” the true picture of the company’s accounts, that it needed to find a massive $US11.5 billion in new capital, and is willing to raise another $US4 billion from switching the dividend from cash to shares, and selling a parcel of shares, is a sign of how strained its capital position had become.

That it found the new capital from two new groups, not involved with it, shows how it couldn’t approach its own shareholders for the money: it was needed quickly and without criticism.

In addition to its emergency capital; raisings from Middle East and Asian investors (Singapore) UBS has warned of a possible fourth quarter loss and red ink for all of 2007.

The write-down of $US10 billion was almost four times the level estimated by major banking analysts on Wall Street and the Swiss bank’s board said the reason for the size was to try and put “maximum clarity” into its balance sheet and end speculation.

It had already written down around $US4.8 billion in loans and securities because of subprime losses taken in the third quarter.

UBS said the Government of Singapore Investment Corporation Pte (which manages the country’s forex reserves) will invest 11 billion francs through the purchase of mandatory convertible bonds, while an as yet unidentified Middle Eastern investor will invest 2 billion francs.

UBS will also sell 36.4 million Treasury shares it had intended to cancel, raising about 2 billion francs, and proposed replacing the 2007 cash dividend with stock, boosting capital by another 4.4 billion francs.

The ABU Dhabi sovereign wealth fund invested $7.5 billion in Citigroup (which will convert to around 4.9% of the bank eventually) at a junk bond-like interest rate of 11%.

UBS is paying 9% on its convertible bonds, more in keeping with previous funding levels, but still a sign that its rescuers see it as having better upside than Citigroup.