UBS Says Ospel Resigns After $19 Billion Writedowns (Update2)

By Elena Logutenkova

April 1 (Bloomberg) -- UBS AG, struggling to stem damage from the U.S. subprime meltdown, reported a second straight quarterly loss after an additional $19 billion of writedowns and said Chairman Marcel Ospel will step down.

The bank will seek 15 billion francs ($15.1 billion) in a rights offer to replenish capital, after already raising 13 billion francs from investors in Singapore and the Middle East. The writedowns will lead to a first-quarter loss of 12 billion francs and further job reductions, Zurich-based UBS said today.

Ospel, who led the creation of UBS in a merger a decade ago, will be succeeded by general counsel Peter Kurer. The Swiss bank joins Citigroup Inc. and Merrill Lynch & Co. in turning to investors for a second time to increase capital after writedowns and losses on subprime-infected assets cost the world's biggest financial institutions more than $208 billion.

``The fact that the latest out of UBS is a combination of capital increase and writedown should be welcomed to some extent because it's a reflection that they are speeding up their write- offs,'' said Yoshihisa Okamoto, a Tokyo-based fund manager at Mizuho Asset Management Co., which oversees about $26 billion. ``But you can't deny the fact that you still don't see the light at the end of tunnel.''

UBS has fallen 45 percent this year, cutting the market value of Switzerland's largest bank to 59.8 billion francs and making the stock the second-worst performer on the 60-member Bloomberg Europe Banks and Financial Services Index.

The first-quarter writedown is greater than the $11 billion estimated by analysts at Merrill Lynch and Oppenheimer & Co.

UBS Departures

Losses already cost the jobs of former CEO Peter Wuffli, finance chief Clive Standish and investment banking head Huw Jenkins. Ospel, 58, who was supposed to stand for re-election at the shareholders meeting on April 23 for a shortened, one-year term, helped arrange the previous capital increase.

``I ultimately take responsibility for the bank's situation,'' Ospel said in a statement. ``With the measures that we have already taken, the proposals we are submitting to the annual general meeting and the processes we have put in place to deal with lessons learned, I believe that I have made all necessary contributions.''

Ospel, a native of the northern Swiss city of Basel, has been UBS's chairman since April 2001. He also was the driving force in the merger of Swiss Bank Corp. and Union Bank of Switzerland. Over time, Ospel solidified his grip on power at the bank even as fellow executives left after losses from the Long-Term Capital Management LP hedge fund in 1998 and the debacle surrounding the bailout of Swissair Group in 2001.

U.S. Expansion

Throughout his years at the bank, Ospel spearheaded UBS's expansion to raise profitability levels closer to competitors in the U.S. In 2000, UBS bought New York-based broker Paine Webber Group Inc. for about $16 billion to build its equities business.

After years of lagging behind competitors in business with fixed-income securities that drove earnings to records across Wall Street, UBS set off on an expansion plan at the peak of the U.S. housing market, only to join the list of investors burned by bets on U.S. mortgages in 2007.

UBS reported a 12.5 billion-franc loss in the fourth quarter, the biggest ever by a bank, and Chief Executive Officer Marcel Rohner told reporters 2008 will be ``another difficult year.''

UBS said in its annual report, published March 27, that it put in place new models for risk management and the valuation of U.S. residential real estate assets at the investment bank in the first quarter.

Terms of Bond

The bank also set up a group about 50 traders in January, whose task is to manage and reduce debt assets affected by the subprime crisis. UBS said today that it will set up a separate unit for the group to ``reduce the effect of distressed market conditions on the core businesses.''

Raising capital again will mean UBS has to renegotiate the terms of the mandatory convertible bond it sold to Government of Singapore Investment Corp. and an unidentified Middle Eastern investor.

Under the terms of the bond, the maximum conversion price for the shares may be lowered if the bank sells more than 5 billion francs of new shares or equity-linked securities at lower prices or with a higher interest payment during one year following December's announcement of the agreement.

New York-based Citigroup and Merrill said in January they will receive $14.5 billion and $6.6 billion from investors respectively, after getting $7.5 billion and $5.6 billion cash infusions in November and December.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net;

Last Updated: April 1, 2008 02:46 EDT

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