UBS still faces risk from sub-prime crisis, says CEO

Jerry Hansin

23 April 2008

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BASEL, Switzerland : UBS, the biggest Swiss bank, warned on Wednesday that it still faced some risk from the US sub-rime crisis after wracking up losses exceeding 37 billion dollars (23.4 billion euros).

Shareholders are gathered here for the annual general meeting of the bank which has been the hardest hit worldwide by the sub-rime crisis.

It reported a net loss of 4.0 billion Swiss francs (2.5 billion euros) in 2007, the first full-year loss in its history.

“It is a disastrous result, and it has eroded a great deal of trust,” UBS chief executive officer Marcel Rohner said in a speech to the AGM.

“The far-reaching consequences of our misjudgement have already taken hold, and we cannot turn back the clock.”

“We still have risk exposure, and the remaining portfolios are still subject to fluctuations,” he warned.

However, Rohner said the bank’s “problem positions are only about a third of what they were at the end of September 2007.”

On Monday, UBS sent shareholders a report detailing the causes that led to its massive sub-rime losses.

The 50-page document conceded that weak risk control and a pay structure that encouraged risky deals were among key factors leading to its massive losses.

At the same time, however, it said that one of the bank’s key strategic objectives was its integrated business model and pointed out that the review saw no “fundamental flaw in relation to its objectives”.

Nevertheless, Rohner said the bank would reassess its investment banking unit, which has drawn criticism for being responsible for most of the sub-rime losses.

“We no longer aim to offer everything to everyone in investment banking,” he said.

“We do not need an oversized balance sheet. We do not need an oversized inventory of trading portfolios. And we do not need an unnecessary concentration of risk.”

With chairman Marcel Ospel having already announced his departure, shareholders’ anger could be trained at his designated successor, Peter Kurer, who is currently general counsel of the group.

The 59-year-old Swiss lawyer joined UBS in 2001 but critics say he is not an ideal candidate to rescue the bank given his lack of experience in the financial sector.

Leading the opposition of Kurer’s nomination is a former director of the bank, Luqman Arnold, who leads investment firm Olivant.

In his own address to shareholders, Kurer said he was not there to “defend” the choice of his nomination.

“I have accepted the challenge out of my sense of responsibility for the bank, its shareholders, clients, staff and the communities we work in.”

- AFP /ls

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