UBS reveals how it lost pounds 90m in `one-off' error

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The Independent Online
Union Bank of Switzerland yesterday spelt out how it lost almost pounds 100m in equity derivatives trading. Nigel Cope, City Correspondent, reports on a trading debacle that has already claimed four scalps this week.

UBS revealed for the first time yesterday the extent of the losses suffered in its equity derivatives business. It said the losses in the first half of this year were SFr200m (pounds 90m), but added that the incident was a "one off".

Werner Bonadurer, head of UBS's trading and sales and risk management services, said: "I am very confident this was a one-off event. Our controlling structure is very good." Mr Bonadurer said the losses in the first half were caused by valuation adjustments due to a change in UK tax laws and by a "calculation error" in one of its options pricing models that led to increased hedging costs.

UBS had left markets guessing earlier this year when its first half report to shareholders said equity derivatives turned in an "unsatisfactory performance" but failed to quantify the problem.

The bank said it was moving to lessen the chances of any repeat of the affair by centralising proprietary trading in equities.

The derivatives losses have claimed the jobs of three traders at the bank's New York office. In addition, Hans-Peter Bauer, the bank's head of fixed income, currencies and derivatives, has replaced Ramy Goldstein in charge of the London derivatives operation.

The scant details yesterday came as UBS announced an upbeat forecast for its full-year performance but disappointed investors by failing to announce a long-rumoured "blockbuster" takeover deal.

Speaking at the bank's annual autumn conference, Mathis Cabiallavetta, chief executive, said the bank had been frustrated in its bid for a big takeover in asset management and private banking services. "The time was not right for the major acquisition which many people expected," he said. He added that UBS had studied a range of opportunities including Scudder Stevens & Clark, the US asset manager snapped up by insurer Zurich Group in June. But it had decided not to pursue any of them.

Analysts said the comments could be interpreted as saying that UBS had abandoned, for now, ambitions of a big deal.

The bank, however, yesterday did announce a smaller deal to buy Alfi Gestion, the French asset manager, for Fr358m (pounds 36.5m). Alfi Gestion has 80 staff and manages assets of around Fr30bn.

The size of the deal disappointed analysts who had been hoping for a statement on the Liechtenstein-based LGT which has said it is selling its global asset management business, with $65bn in client funds, in order to concentrate on private banking. "We had expected something on LGT and there was all this talk of Merrill Lynch and they go and buy a French boutique," one trader said.

Mr Cabiallavetta said that trading results in the first nine months were 8 per cent higher than last year. He forecast that UBS would post net profits of around SFr3.2bn for the full year. That would compare with a SFr348m loss last year.