UBS shakes up management after credit losses

Huw Jenkins, CEO of UBS Investment Bank, will leave his post Reuters

Leading Swiss bank UBS has reorganised its management in the wake of massive predicted losses caused by worldwide credit woes.

The world’s largest wealth manager swept out senior managers and announced it would cut 1,500 jobs in its investment bank as it became one of the biggest casualties so far of turmoil in global credit markets.

The third-quarter losses of up to SFr800 million ($685 million) are mostly linked to the subprime mortgage crisis in the United States, according to a UBS statement from the bank’s Zurich headquarters on Monday.

Overall UBS will write down SFr4 billion in losses in its fixed income portfolio following the closure of its Dillon Read Capital Management subsidiary.

“We will make an overall pre-tax loss at Group level for the quarter. These events have led to management changes,” UBS chief executive Marcel Rohner said.

He added the critical time would be over in the next six months and he expected the bank to end 2007 with good profits.

Investment bank head Huw Jenkins, who drove a rapid expansion in UBS’s bid to join the top-five investment banks worldwide, will leave along with UBS chief financial officer Clive Standish, who will be replaced by management expert Marco Suter.

Rohner will assume control of the investment bank.

Detailed results for the third quarter will be announced at the end of October as planned, the bank said.

UBS share prices dropped nearly four per cent in early trading on the Zurich stock exchange, but later recovered.

Subprime fallout

Experts say UBS’s predicted losses appear to exceed those reported so far by other investment banks.

“It definitely fuels ongoing worries on the markets,” said Valerie Pagnol at CM-CIC Securities in Paris.

UBS is only the latest in a string of global banks that have reported hits from a downturn in the US housing market, which has triggered a credit crunch.

Bear Stearns Cos, Morgan Stanley and Lehman Brothers all recorded profit slumps and had to make considerable write downs.

Credit Suisse, the second-largest Swiss bank, said on Monday it had also been hit by the credit crunch but would remain profitable.

The Swiss banking regulator said the UBS losses were regrettable and it had taken note of the Credit Suisse statement. It added however that there was no reason for concern for creditors.

UBS had enough liquidity and a very solid equity base, according to a spokesman for the Federal Banking Commission.

A meltdown in the US subprime mortgage market, sparked by growing defaults on riskier loans, has created a squeeze in credit markets around the world which forced major central banks to inject emergency funds into the global financial system.

Banks worldwide have clammed up on lending to each other as they try to calculate exposure to soured loans.

Dual strategy

UBS’s losses come as critics are questioning the bank’s dual strategy of investment banking and wealth management.

However, on Monday Rohner downplayed speculation that UBS would seek to split the group into its two main units: investment banking and wealth management.

Rohner took up his job in July after the shock exit of Peter Wuffli, who had come in for criticism of his handling of the bank’s in-house hedge fund, Dillon Read.

Wuffli had led the bank on a growth path, expanding from its traditional base in private banking and rapidly building up its business in the US.

swissinfo with agencies

In brief

The predicted loss is the first quarterly loss for UBS in nine years.

Rival Credit Suisse said it would remain profitable in the third quarter despite the market events.

However, at the end of September Credit Suisse announced it would axe 150 jobs in the US and Britain as a result of the credit crisis.

British bank HSBC and US investment bank Lehman Brothers cut 750 and 1,200 jobs respectively.

Deutsche Bank expects the credit crunch to adversely affect its results.

Key facts

Results for second quarter of 2007:

Net profit: SFr5.62 billion (+79% on same period a year earlier)
Operating income: SFr12.06 billion
Total assets: SFr2.13 trillion
Number of employees worldwide (June 2007): 71,882
Number of employees in Switzerland (2006): 27,018