By Jennifer Yousfi
UBS AG (UBS) announced yesterday (Tuesday) an estimated $19 billion (12 billion Swiss francs) loss in the first quarter. As a result of the $38 billion in losses accrued by the Swiss bank since the third quarter of 2007, Chairman Marcel Ospel will step down.
Due to the estimated loss, the bank has been forced to seek another emergency capital infusion, after having already raised $13 billion from sovereign wealth funds in Singapore and the Middle East.
"Behind closed doors they have been cleaning up very swiftly and the capital increase will put them back onto a solid foundation," Joerg de Vries-Hippen, who manages about $26 billion, including UBS shares, as chief investment officer for European stocks at Allianz Global Investors AG in Frankfurt, told Bloomberg News. Still, "it will take years to repair the bank’s reputation," he said.
UBS had already segregated most of its assets related to U.S. mortgage-backed securities into a portfolio workout unit for risk management purposes, to separate high-risk positions from its other, profitable, businesses. In a statement yesterday, UBS announced that it would "form a new entity to hold substantial parts of the work-out portfolio, which will initially be wholly owned and financed by UBS."
Ospel, 58, who started his financial career in securities trading at Merrill Lynch & Co. Inc. (MER) has been lambasted in the Swiss press for overexposing UBS to the U.S. subprime crisis.
"His time is over. You cannot preside over a disaster like this without accepting responsibility," said a rival banker, who spoke with Reuters on condition of anonymity.
The bank has nominated UBS General Counsel Peter Kurer as Ospel’s replacement. Voting will be held at the next board meeting, slated for April 23.
Ospel’s departure is the latest in a string of financial executives who have been ousted due to mounting subprime-related losses. The Bear Stearns Cos. Inc. (BSC) former Chief Executive Officer James E. "Jimmy" Cayne stepped down in early January, but remained on as Chairman. Charles O. "Chuck" Prince III was ousted from Citigroup Inc. (C) in early November to be replaced by . And former Chief Executive E. Stanley "Stan" O’Neal, of Merrill Lynch retired at the board’s urging in late October.
"With these measures we have created the basis to weather one of the most difficult periods in the history of the industry, " UBS Chief Executive Officersaid in the statement.
Investors welcomed the news of Ospel’s departure. UBS shares traded on the New York Stock Exchange rose over 14% for the day, with a gain of $4.23 to close at $33.03.
News and Related Story Links:
- Bloomberg News:
UBS Says Ospel Resigns After Writedowns Lead to Loss
UBS plans $19 bln write-down, capital injection