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UBS to Slash Investment Bank after Crisis

Reuters
Wednesday, 23 Apr 2008 | 12:00 PM ET

UBS signaled that it will cut its investment bank to a rump after lost bets in subprime mortgages landed the Swiss group with a $37 billion bill, making it the biggest casualty of the financial crisis.

The group's new chief executive told shareholders on Wednesday that the investment bank would no longer be allowed to use UBS's prized wealthy client base to refinance the business, effectively cutting its lifeline.

"The capital required by the investment bank for future growth must be generated under its own steam," Marcel Rohner told shareholders.

Although it will keep a rump to sell special products to UBS's wealthy customers, his words mark the departure of an investment banking titan from the global stage and an end to the hopes of fallen chairman Marcel Ospel to conquer Wall Street.

UBS investors gathered on Wednesday to consider a second emergency capital increase within months in order to stabilize the Swiss bank reeling from the subprime crisis.

It coincides with Royal Bank of Scotland's shareholder meeting in Edinburgh, when the board of management is set to come under pressure after a 12 billion pound ($23.89 billion) rights issue to cover damage from toxic investments, the biggest ever cash call by a UK company.

The shareholder meeting in Switzerland is also the last time chairman Marcel Ospel faces angry investors.

The 58-year-old architect of UBS, who had ruled with an iron hand, has been sacked and will likely be replaced by the bank's chief lawyer, Peter Kurer.

On the Rocks

Ospel leaves UBS in the biggest crisis in its history, grappling with a more than $37 billion hit from the collapse in home loans given to poor U.S. borrowers.

Shareholders who traveled to the meeting in Basel were treated to a gift bag containing just an apple and some mints.

"Thanks to your non-existent risk-management policy, you almost sunk this ship," said one shareholder in what was at times a heated exchange with management. "Now it's time to get a new crew."

The criticism comes in a week when a UBS report blamed poor risk control and a blinkered focus on bolstering revenue for its problems, saying it had let a ramping up of its investment bank run out of control.

Ospel's likely successor, little-known lawyer Peter Kurer, will now have to placate angry shareholders, many of whom are calling for a break-up of the wealth management and investment banking powerhouse.

The Swiss bank will ask shareholders to support another 15 billion Swiss franc capital increase, after its 13 billion franc sale of shares to the Singapore government and another, undisclosed investor from the Middle East.

Ospel had been harshly criticized for sanctioning UBS's misadventures in its bid to become the world's biggest investment bank, but held on to power longer than some had expected, sacking most of the top management.

Kurer is also controversial.

Widely praised for his work as a lawyer, he has yet to prove himself as a banker, and is possibly tainted already by UBS's past because he was in top management when its recent blunders were made.

Activist investor Olivant -- controlled by former UBS chief executive Luqman Arnold -- has urged the bank to appoint a heavyweight banker at its helm instead.

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