Recent Events

 1st Quaret 2008 Expected Net Loss of CHF 12 billion

UBS has pe-announced its first quarter 2008 results stating that it expects a net loss of CHF 12 billion mainly due to US$ 19 billion of write-downs on its US real estate and related structured credit positions. This brings the total write-downs (2007 to first quarter 2008) to US$ 37 billion.

The announcement also stated that it has undertaken a rights issue of CHF 15 billion (fully underwritten) in addition to the already agreed CHF 13 billion capital raising.

The announcement also stated that the current Chairman, Marcel Ospel, will not stand for re-election at the 2008 Annual General meeting.  The Board proposed the appointment of Peter Kurer as Ospel's successor. The Board stated that the appointment was part of an extensive process, which was already underway, whereby the Board is reviewing the root causes of and lessons learned from its subprime losses. In particular, the Board is thoroughly examining governance, strategy implementation, risk management, monitoring, and control systems, incentive plans and succession planning and is committed to making all necessary adaptations and changes to ensure it establishes best practices in these areas.

 Sub-prime Losses US$ 18 billion 

UBS has announced a net loss attributable to shareholders for the full year of CHF 4.384 billion. During 2007, UBS was forced to writedown its US sub-prime holdings by US$ 18 bn.  The writedown was far higher than expected and has dented the Group's conservative Swiss reputation. According to its Finance Director, Marco Suter, the sub-prime losses were incurred in a few trading books which even in the past were only marginal revenue contributors. Full details were provided on 14 February 2008 when its final full year results were published.

Recapitalisation 

At the request of UBS, the Government of Singapore Investment Corporation and an undisclosed Middle Eastern investor have agreed to buy CHF 13 billion (US$11.5 billion) of UBS mandatory convertible notes with a 9% coupon. The notes will eventually convert into approximately a 10% stake in UBS, depending on the conversion ratio used at maturity.  The action was taken to strengthen its capital position. The recapitalisation will be voted on at a special shareholder's meeting in February. The Swiss National Bank has supported the recapitalisation but many individual and institutional shareholders believe the solution disadvantages current shareholders. A number of other financial institutions have approached sovereign funds for investment but most have allowed current shareholders the opportunity to invest on the same or similar terms. At the February EGM, shareholders will also be asked to approve the creation additional authorized capital to allow for the replacement of the cash dividend with a stock dividend for the current year. The Board has already approved the rededication for sale of 36.4 million Treasury Shares previously intended for cancellation.

Management Changes 

Following on from the ealier statements on losses in the sub-prime market, UBS in October 2007 announced management changes and the loss of 1500 jobs. Mr Ospel, the UBS Chairman, had already removed Peter Wuffli, the chief executive officer. Others, including,the chief executive of the investment banking division, the group chief financial officer and the head of the fixed income business have also left. The group chief risk officer has been transferred to another role.

But after UBS announced at the end of January 2008 that the total losses from the meltdown in the US sub-prime mortgage market have reached US$ 18 billion, many believe that the changes are not sufficient and that Ospel should also leave or at least announce his retirement date. If this were to happen, many believe that UBS will have a greater chance of obtaining the requested approvals to the resolutions to be put at the EGM in February.

Risk Management 

In their letter to shareholders, included in the 2006 Annual Report, the UBS Chairman and the then current CEO, highlighted the banks approach to risk management and also their short term concern for the markets.

Extract from-
Fourth Quarter 2006 Report
13 February 2007
Letter to shareholders

Our approach to risk has been critical to our current growth. UBS's average risk-weighted assets are today at a similar level to 1998, just after the UBS-SBC merger, although our underlying risk profile is very different. We are now a more integrated firm - our business model has evolved, and the way we view, manage and control our risks has changed.

The primary focus in our risk-taking activities is to ensure the adequate diversification of risk in order to avoid illiquid and concentrated positions, and to ensure that we are rewarded for the risks we take.

We have transferred resources from businesses in illiquid markets into more liquid ones, and have actively pursued risk distribution strategies. Portfolios with poor returns on risk have been cut back and the quality of other portfolios has been enhanced…….

Outlook……… In the short term, as the economic cycle matures, investors might become more sensitive to any disappointing political or economic developments, so our top-class risk control remains paramount.