UBS Losses Force out Chairman

The Swiss bank UBS has lost $37 billion so far as a result of the credit crunch. The worry is that the bank may not be done taking its lumps. Just how did a bank like UBS find itself in such a position? Pure and simple, bad management. The company’s chairman Marcel Ospel is going as a result.

Robi Tschopp, who represents the shareholders group Actares, said “We think this is a very welcome development. It’s a symbol at least that top management are prepared to take responsibility for their actions.” However, the new chairman is going to be Peter Kurer, who is already on the board of UBS, “He is a UBS insider, so this is not really a change in tactics,” Mr.Tschopp explained. “We see this as an interim solution; what is really needed is someone from outside, who can come in to UBS and look at exactly what went wrong.”

What went wrong was too much dodgy debt. Matthew Clark of stockbrokers Keefe, Bruyette & Woods told The Guardian, “With $31 billion of risky mortgage assets remaining, including $15 billion sub-prime, UBS could yet be exposed to downside.” That exposure led Standard & Poor’s to downgrade the bank’s credit rating a notch to AA-.

The bank said in a statement, “To maintain its position as one of the world's strongest and best capitalized banks, UBS announces a rights issue, fully underwritten by four leading international banks, to raise approximately CHF [Swiss Francs] 15 billion.” It has also “segregated most of its assets related to US residential real estate into a portfolio work-out unit, separating these positions from its other, profitable, businesses. UBS today announces that it will form a new entity to hold substantial parts of the work-out portfolio, which will initially be wholly owned and financed by UBS.”

Extreme measures given the extreme situation to be sure. As Peter Dixon, economist at Commerzbank said, “The one saving grace in this is that banks are acting quickly to highlight their exposure. The quicker the bad news is out in the open, then the quicker we can start to repair the problems.” And the quicker the old management can clear out, the better. Bank stocks helped boost the Dow almost 400 points yesterday, and the Asian and European markets have followed suit, largely because they hope the worst is over. Time will tell.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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