Extra $4bn writedown will force UBS intoits first annual loss

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The Independent Online

Marcel Ospel, chairmanof UBS, said last monththat he was "personally ashamed" when Switzerland's biggest bank wrote down $10bn (£5bn) of assets in what was the latest in a string of announcements. So how must he be feeling after yesterday's additional $4bn writedown, taking the total for the fourth quarter to $14bn?

Not only was there a further $2bn of sub-prime damage but UBS also announced a potential loss of $2bn on other US obscure mortgage-related assets. Investors will have to wait until the bank's results on 14 February to find out more.

Mr Ospel, 57, is UBS's great survivor. Having presided over the bank for nearly 10 years, first as chief executive and then as chairman, he remains in place despite the battering the world's biggest wealth manager has taken from the sub-prime crisis.

The writedowns will force UBS into its first annual loss since the bank was formed from a merger 10 years ago. Things have been unusually chaotic at Switzerland's biggest bank in the last few months. Not only have investors had to endure a succession of writedowns but the bank is in danger of unnerving the rich people who entrust it to look after their money in its core wealth management business.

To shore up its capital position, UBS announced last month that it would sell SFr13bn (£6bn) of bonds to Singaporean and Middle Eastern funds, but it faces a shareholder rebellion from investors who object to the dilution of their interests. In a move to make a case for the capital injection, the bank said yesterday that its tier one capital ratio was 8.8 per cent at the end of Dec-ember – a healthy position for most lenders but below the 12 per cent that UBS likes to keep to reassure its clients.

"The damage is enor-mous," Dominique Biedermann, director of Ethos Foundation, told Bloomberg. "It wipes out profit and shows that an inquiry is needed to make sure it doesn't happen again and eventually whose responsibility this is. Mr Biedermann is calling for an independent audit of the bank's controls.

The writedowns are the result of expansion of UBS's investment bank into the structured credit market as it sought to match Wall Street giants in the booming market for complex debt products.

Analysts say the bank's risk controls must have lapsed severely as its balance sheet was used to invest in risky products whose values have been slashed by the collapse in confidence that started in the summer

The financial mess has been matched by un-Swiss disorder at the top of the bank.

UBS was one of the first casualties of the market turmoil when in May a hedge fund it had set up less than a year earlier blew up bec-ause of losses linked to sub-prime mortgages.

Heads had to roll but it was Peter Wuffli, the bank's chief executive, who left abruptly. Mr Wuffli, who was Mr Ospel's protégé, was soon followed by the head of the investment bank and the finance director in October.

Mr Wuffli's departure was a mess, but it had echoes of earlier episodes involving Mr Ospel, who has periodically reasserted control over the bank.

Mr Wuffli's predecessor, Luqman Arnold, left UBS in late 2001 after a dispute linked to Mr Ospel's decision to bail out Swissair, the airline. The previous year, Mr Ospel also forced out Rudi Bogni, head of UBS's core private banking business.

Mr Wuffli's departure in July came after a board split on succession planning after other directors rejected Mr Ospel's call for the chief executive to be lined up to replace him. In a bizarre move, a UBS statement acknowledged the disagreement and then said Mr Ospel would stay on for another three years.

But life has become more dangerous for bank bosses since the summer. UBS's fourth-quarter writedowns are bigger than those for Citigroup and Merrill Lynch, both of which have ousted their chief executives because of the unexpectedly big losses. If another scalp is required at UBS, it could finally be Mr Ospel's turn this time.

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