UBS board reeling huge subprime losses

July 1, 2008
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, ZURICH, July 1  – The biggest Swiss bank UBS, reeling from huge subprime losses, slashed its chairman\’s powers and announced four boardroom changes on Tuesday, as its shares plunged to a record low point.

The bank cut the chairman\’s powers severely and four directors are to resign after months of drama over losses arising mainly from the subprime home-loan and securitisation crisis in the United States.

It announced a new management structure, with immediate effect, that will see the abolition of the chairman\’s office. The chairman\’s duties and responsibilities are being switched to board committees.

The chairman, Peter Kurer, appointed in April, said that "bringing UBS back to its leading position was the number one priority."

He said: "We have made a big step forward with the clear separation of the duties between the board and executive management and the abolition of the chairman\’s office."

The bank said: "The duties and responsibilities of the former chairman\’s office are now allocated to a greater number of committees of the board, including new Risk and Strategy Committees."

The bank has written down the value of assets by about 37 billion dollars, rushed to raise extra capital to shore up its balance sheet and warned it might cut 5,000 jobs.

It had already appointed Kurer to replace former chairman Marcel Ospel, criticised for holding too much power. The new structure appears to address this issue.

Some analysts think UBS may yet announce further big writedowns, and the bank has also attracted the vigilance of the central bank and financial regulator over its capacity to withstand any more shocks, because of its importance to the Swiss economy.

The bank said it would call an extraordinary general meeting on October 2 to elect new directors to replace four who will resign in October.

By late morning, UBS shares were showing a fall of 6.4 percent to 20.06 Swiss francs, after having touched the day\’s low of 19.90. It was the worst performer of the Swiss Market Index which was down 1.3 percent.

Analysts were cautious in their comments on the latest responses by UBS.

Swiss bank Wegelin said that even if the board changes were welcomed, possible new asset writedowns in the second quarter, clients\’ withdrawal of funds, and a tax evasion case in the United States still weighed heavily on the bank.

"As long as there is no clarity on this subject, a return to normalcy is hardly possible," Wegelin analysts said.

Another Zurich-based analyst, who declined to be named, said: "UBS could have announced a warning on its second-quarter results and it is not excluded that it could still do that."

The UBS group said that in a clear separation of tasks, the board would be responsible for strategy and supervision. The chief executive officer and the group executive board would be fully responsible for operational management.

The bank has written off over 37.4 billion dollars (23.7 billion euros) in assets since the beginning of the subprime crisis.

But besides the subprime problems, the bank is now facing a further headache in the US over a tax evasion probe.

On Monday, the US Justice Department said it was seeking access to information about accounts in UBS opened by US taxpayers who may be stashing money in the Swiss giant to avoid paying taxes.

The move follows the confession of former UBS banker Bradley Birkenfeld to a Florida court in mid-June that he conspired to help wealthy American clients dodge taxes.

The Justice Department said that Birkenfeld, in a court statement, claimed UBS had approximately 20 billion dollars of assets under management in "undeclared" accounts for US taxpayers.

The bank is scheduled to report its second-quarter results on August 12, and analysts are expecting further writedowns and losses to run up to the billions.

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