Page last updated at 09:53 GMT, Monday, 21 April 2008 10:53 UK

UBS admits errors to shareholders

UBS office logo
UBS has suffered more than any other bank from the US sub-prime disaster

Swiss bank UBS has admitted that a lack of risk control and ambitious plans to grow revenue led to its huge losses when the global credit crunch struck.

The admissions come in a 50-page report to shareholders before its annual general meeting later this week.

UBS has so far made write-downs of $37bn (18.5bn), dwarfing those made by any other leading bank.

The losses cost chief executive and chairman Marcel Ospel his job and the firm faces calls to be split up.

In a summary of a report ordered by Switzerland's EBK banking regulator, UBS admitted that its plan to grow its businesses between 2006 and 2011 included substantial growth in exposure to riskier assets in its investment bank arm.

UBS said the problems began in its hedge fund unit, Dillon Read Capital Management, which it closed last May, and then spread to its fixed-income division, which contributed about two-thirds of the US sub-prime losses sustained by the group.

Despite warnings from senior management over deteriorating conditions in the US housing market in the second quarter of 2007, its fixed income desk continued to build up investments in this area and their actions were not questioned.

The Zurich-based firm blamed a lack of adequate management and expertise for being slow to take notice when its rivals began to suffer from exposure to sub-prime securities.

"The investment bank was focused on the maximisation of revenue. There appears to have been a lack of challenge on the risk and reward to business area plans within the investment bank at a senior level," UBS said.

Risk oversight

The list of failings is likely to inflame shareholder anger ahead of UBS' AGM on Wednesday when the new chairman Peter Kurer will ask them to approve 15bn Swiss francs ($14.7bn; 7.4bn) of fundraising to shore up the group's finances.

It will be the second capital raising programme since the beginning of the year after UBS demanded investors back a 13bn-Swiss franc investment from Singapore's investment agency and an unnamed Middle Eastern investor.

UBS' troubles have seen some investors, most vocally former UBS boss Luqman Arnold, argue for a break up of the group. UBS consists of three businesses: wealth management, asset management and the investment bank.

Mr Arnold, who owns 0.7% of UBS through his UK-based investment firm Olivant, wants the group to separate the lucrative wealth management arm from the group's investment banking business, which is responsible for the losses, and sell its asset management arm to raise cash.

Mr Arnold has also criticised the appointment of Mr Kurer, previously the bank's top lawyer, who he believes does not possess the right skills to lead a recovery at the embattled firm.

Investor calls for UBS break-up
04 Apr 08 |  Business
UBS doubles sub-prime writedowns
01 Apr 08 |  Business
New UBS boss admits to 'damage'
16 Apr 08 |  Business
Unhappy times for UBS investors
01 Apr 08 |  Business

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