UBS blames loss on reckless pursuit of cash

UBS, which has written off more bad debt from the subprime crisis than any other bank, acknowledged Monday that a blind drive for revenue had led it to take many more risks than it should have.

The largest Swiss bank published a 50-page report two days before a shareholders' meeting where it will seek permission to shore up its balance sheet by another 15 billion Swiss francs, or nearly $15 billion. Analysts said the report, which reads like a detective novel on reckless banking, could help the bank's case by demonstrating transparency.

"On the one hand the report provides new ammunition for its critics," said Dieter Buchholz at AIG Private Bank in Zurich. "But on the other hand it may take some wind out of the sails of critical shareholders by answering some questions" preemptively.

The report was posted on the bank's Web site in response to activist shareholders, who had demanded a special investigation at a tumultuous shareholder meeting in February. It summarizes answers sent to the EBK, the Swiss banking watchdog, which is conducting an investigation into UBS.

UBS, the largest Swiss bank, has written off about 38 billion Swiss francs since the subprime crisis began last summer, including a $19 billion write-down announced April 1. In effect, it has destroyed all the profits generated by the bank since 2004.

But the Swiss banking regulator has repeatedly stressed that UBS "has never posed a threat to its creditors."

In the report, UBS blames its massive write-downs on poor risk control, an overly fast build-up of its investment banking activities and a lack of clear management structures. Indeed, the chairman, Marcel Ospel, was known for his determination to make UBS one of the world's top three investment banks.

In 2007, UBS reported its first-ever loss and predicted more to come.

The report attributes one-sixth of its sub-prime losses to its hedge fund unit, Dillon Read Capital Management, which it shut last May as one of the first victims of the subprime crisis. The bulk of the loss was generated at the fixed-income business of its investment bank.

The report blames an "insufficiently robust" overall risk control framework and says that management of its investment banking division "lacked effectiveness" and "focused too much on the maximization of revenue growth."

Meanwhile "senior management apparently did not sufficiently challenge each other," it said.

The report also noted "inappropriate risk metrics used in strategic planning and assessment" and a "lack of reaction to changing markets."

On Wednesday, the bank will once again be in the line of fire. When Ospel, the heavily criticized chairman, stepped down in March, he proposed Peter Kurer, the bank's general counsel, as his successor.

But Olivant, an activist shareholder group led a former UBS president, Luqman Arnold, has publicly questioned the choice of Kurer, saying he lacks banking and risk management expertise. Instead, Olivant is demanding sweeping changes: an internationally acclaimed banker as chairman; a focus on wealth management, after selling its investment banking arm; and better corporate governance.

"We have not decided what exactly to do on Wednesday," an Olivant spokesperson said Monday.

If shareholders agree to the latest proposed capital increase, the bank will have repaired its balance sheet by 34 billion francs in the last two months.

http://www.iht.com/articles/2008/04/21/business/ubs.php

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UBS blames loss on reckless pursuit of cash