Page last updated at 15:35 GMT, Tuesday, 12 August 2008 16:35 UK

UBS woes continue

By Imogen Foulkes
BBC News, Geneva

UBS logo

UBS is not the glorious bank it used to be

Yvan Lengwiler, banking analyst, Basel University


The news that the Swiss banking giant UBS has posted new losses in the second quarter has not exactly caused surprise.

But many shareholders and financial analysts who had hoped the bank would show a stronger recovery after catastrophic losses in the first quarter are disappointed.

UBS was once a bank with a rock solid reputation, renowned world wide for its caution and reliability. Its wealth management division has been particularly successful, and at times the same could be said about its investment banking operations.

But over exposure to US sub-prime mortgages has turned a bank which just 12 months ago was showing healthy profits, into an institution which has lost over 12 billion dollars, and written off a staggering 42 billion.

Shareholder shock

For many Swiss shareholders, who have seen the value of their shares plummet, this has been a shock from which they are still struggling to recover.

Credit Suisse branch
Many people in Switzerland still find it hard to understand how and why this happened, especially when Credit Suisse seems to be doing much better
Roby Tschopp, Actares

"Our members are obviously very disappointed by these losses," says Roby Tschopp, who represents the shareholder group Actares. "Many people in Switzerland still find it hard to understand how and why this happened, especially when Credit Suisse seems to be doing much better."

Nevertheless, many shareholders welcome the changes at board level, and the new structure, announced today by UBS.

"The four new board members are very welcome," says Vinzenz Mathys, spokesperson for the shareholder group Ethos. "These are new faces with good banking skills, and that's something we've been calling for for sometime."

Adds Mr Tschopp: "The separation of the investment and wealth management divisions is a good sign. That's something we wanted, and we do think the bank will function better with this new organisation."

Worries remain

But these changes, while welcome, may not be enough to reassure shareholders, or the Swiss public, that the bank they once trusted completely is ready to be trusted again.

UBS plays an important role in Switzerland's overall economy, so when it does badly, the Swiss get nervous - not least because the bank's recovery plan involves more than 5,000 redundancies, many of them in Switzerland.

And Swiss shareholders have not forgotten that less than a year go, UBS managers were still accepting generous bonuses, even as the news of the bank's losses became known.

Tax investigation More recently, a further blow has come with the news that UBS is under investigation in the United States for allegedly helping clients to avoid paying tax.

UBS is clearly taking this investigation very seriously; it has already stopped providing offshore banking services to US residents. It has also told its private banking team not to travel to the United States, following the indictment of one former UBS banker in connection with the investigation.

"Our shareholders might have liked UBS to make its commitment to [banking] ethics much clearer," says Mr Tschopp. "You know, a kind of intention to become the cleanest bank in the world? That would be nice."

Glory days are over

For financial analysts, however, fine words may not be enough to repair the damage done to the reputation of Switzerland's biggest bank. Yvan Lengwiler, a banking analyst at Basel University, believes the UBS management and its new board members have a long hard slog ahead.

"I think regaining confidence is the now the key issue for UBS," he says. "There were grave management errors at the very top, and inappropriate risk management, which is of course one of the biggest sins for a bank.

"So yes, the reputation is damaged, it will take a great deal of effort to get this back. UBS is not the glorious bank it used to be."




SEE ALSO
UBS in revamp as losses rack up
12 Aug 08 |  Business
US lawmakers attack bank secrecy
17 Jul 08 |  Business
UBS launches $15.5bn cash call
22 May 08 |  Business
Credit Suisse returns to profit
24 Jul 08 |  Business
Credit Suisse bank loses billions
24 Apr 08 |  Business

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