UBS admits to pounds 200m loss on derivatives and bonds

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The Independent Online
UBS, the Swiss bank, yesterday admitted it lost almost pounds 200m on equity derivative and proprietary equity trading during 1997.

Last November, UBS admitted to losing pounds 90m on equity derivative trading during the first half of 1997. This was "due to changes in UK tax law and an error in a computer model to price options", the bank said.

But recent rumours of far larger derivative losses prompted the bank to admit yesterday that "difficult world-wide market conditions ... led to further losses of around 150 million Swiss francs (pounds 65m) in the ordinary equity derivatives business during the closing months of the year".

In addition, UBS said losses on proprietary trading in Japanese banks' convertible bonds had led to "a negative balance of around 100 million Swiss francs (pounds 40m) for equity proprietary trading". The bank, which was caught out by the sell-off in Japanese bank shares that followed the failure of Yamaichi Securities, failed to specify the magnitude of the losses made on the Japanese convertible bonds themselves.

Some sources believe the magnitude of UBS's trading losses may prove to be greater still, saying that certain UBS trading positions still remained open. It is unclear, though, whether further UBS trading losses would ever be disclosed, following the bank's decision, announced in December, to merge with rival SBC.

UBS also used yesterday's statement to try and dispel rumours that SBC was keen to renegotiate the terms of the merger.

UBS said: "Rumours of a purported renegotiation of the merger agreement between UBS and SBC are totally unfounded. UBS's disappointing overall result in equities trading was known to both banks at the time of the merger negotiations."