UBS revival hinges on market upturn

Marco Suter (left) and Marcel Rohner are expecting more tough times ahead Keystone

UBS, Switzerland's largest bank, predicted another tough year in 2008 saying its recovery is to some extent reliant on more favourable market conditions.

The bank posted a SFr4.38 billion ($3.96 billion) loss last year as a result of the United States subprime crisis. It has appointed a new investment banking head and a task force to clean up the troubled division.

The “unacceptable” result was in stark contrast to that of rival Credit Suisse, which benefited from its more conservative risk-taking approach to post a SFr8.55-billion profit on Tuesday despite also taking some subprime losses.

UBS has negotiated a SFr13-billion emergency cash injection from Singapore and the Middle East, which will be voted on by shareholders later this month. Other recovery measures include the reissue of 36.4 million treasury shares and 1,500 job cuts.

But despite these measures the bank admitted it could not totally control its own fortunes this year as it still has $27.6 billion (SFr30.5 billion) in outstanding exposures to risky investments – down from $38.8 billion in September.

“In the first few weeks of 2008, equity markets worldwide have fallen by an average 12 per cent… Economic data has deteriorated especially, but not only, in the United States. UBS expects 2008 to be another difficult year,” the bank said in a statement.

Speaking at the group’s annual results meeting in Zurich on Thursday, chief financial officer Marco Suter also blamed the weakened dollar for denting profits.

Fourth-quarter writedowns resulted in a SFr12.5 billion loss in the last three months of 2007, compared with a profit of over SFr3 billion for the same period a year ago.

New face

UBS’s recent woes have been attributed to its investment banking arm that racked up some SFr20 billion of subprime related writedowns and posted a SFr15-billion loss for the year.

On Wednesday the bank appointed Swede Jerker Johansson to head the division after sacking Huw Jenkins last year. The bank has also appointed a “workout group” to implement stringent new risk control measures.

Another area of concern for the bank was the flight of institutional investors who took more than SFr16 billion out of its asset management business. However, the flight did not spread to other divisions, such as wealth management, which attracted SFr156 billion of new money – a rise of 37 per cent on 2006.

Suter and UBS chief executive Marcel Rohner were at pains to point out that other areas of the group had performed well last year.

Global wealth management and business banking recorded full-year pre-tax profits of SFr9.5 billion, up from SFr8.141 billion in 2006.

“Once this credit storm has blown itself out, the attention will certainly shift back to our very successful core businesses,” Suter said on Wednesday.

But it is still uncertain how severe the storm will be and how long it will last. Shareholders have yet to agree to the SFr13 billion cash bailout – a central pillar of the revival plan – while calls are growing for chairman Marcel Ospel’s head.

swissinfo, Matthew Allen in Zurich

In brief

UBS endured a stormy 2007, starting with the collapse of its hedge fund Dillon Read Capital management. Two months after that, in July, chief executive Peter Wuffli abruptly departed without clear explanation.

In October of last year, UBS said it would cut 1,500 jobs in its investment banking arm, including its head Huw Jenkins. UBS chief financial officer, Clive Standish, also left at the same time.

Later that month the bank announced it was writing off SFr4.2 billion on subprime losses and SFr726 million pre-tax loss for the third quarter – the first quarterly loss in nine years.

In December UBS said another $10 billion would be written off as the US subprime crisis deepened.

A further $4 billion was written off in January, bringing the total losses to around SFr20 billion.

UBS 2007 results

Net loss of SFr4.38 billion (SFr12.26 profit in 2006)

Operating expenses SFr8.59 billion (SFr8.65 billion 2006)

Employees: 83,560 (78,140 in 2006 and 83,814 in September 2007)