UBS Says Ospel Resigns After Writedowns Lead to Loss (Update7)

By Elena Logutenkova

April 1 (Bloomberg) -- UBS AG, battered by the biggest writedowns from the collapse of the U.S. subprime mortgage market, reported a 12 billion-franc ($11.9 billion) first-quarter loss and said Chairman Marcel Ospel will step down.

UBS rose the most in two weeks in Swiss trading after announcing plans today to seek 15 billion francs in a rights offer to replenish capital, on top of 13 billion francs already raised from investors in Singapore and the Middle East. Zurich-based UBS will write down $19 billion on debt securities, bringing the total to almost $38 billion since the third quarter of 2007.

``Behind closed doors they have been cleaning up very swiftly and the capital increase will put them back onto a solid foundation,'' said Joerg de Vries-Hippen, who oversees about $26 billion, including UBS shares, as chief investment officer for European stocks at Allianz Global Investors in Frankfurt. Still, ``it will take years to repair the bank's reputation,'' he said.

Ospel, 58, who helped form the world's largest money manager a decade ago, will be replaced by general counsel Peter Kurer. Deutsche Bank AG reported $3.9 billion of writedowns today and said that markets are ``significantly more challenging.'' UBS said it plans further job cuts at its investment bank.

UBS rose 3.54 francs, or 12 percent, to 32.4 francs in Zurich. The stock has fallen 38 percent this year, cutting the bank's market value to 67.2 billion francs and making UBS the second-worst performer on the 60-member Bloomberg Europe Banks and Financial Services Index.

Swiss Clients

Rising U.S. mortgage defaults have caused about $230 billion in credit losses and writedowns at financial companies worldwide.

The near collapse of New York-based Bear Stearns Cos., the fifth-largest U.S. securities firm, and its takeover by JPMorgan Chase & Co. heightened concern that some of the largest financial institutions are at risk. Lehman Brothers Holdings Inc., the No. 4 U.S. securities firm, raised $4 billion from a stock sale to quell speculation it's short of capital.

UBS's $19 billion writedown in the first quarter compares with shareholders' equity of 42.5 billion francs at the end of 2007. The year-end figure doesn't include the funds raised from Government of Singapore Investment Corp. and an unidentified Middle Eastern investor last month.

Rating Cut

Standard & Poor's cut UBS's long-term counterparty credit rating by one level to AA- and said it may lower the rating further after ``risk management lapses.''

The bank's Tier 1 capital ratio, a key measure of solvency, will rise to about 10.7 percent after the rights offer. Without the capital increase, the ratio would have fallen to about 7 percent, the bank said. Deutsche Bank's ratio at the end of the first quarter was probably between 8 percent and 9 percent, the Frankfurt-based company said.

UBS, with about 2.3 trillion francs in private-banking assets, said clients in Switzerland withdrew funds in the first quarter. The Swiss redemptions were offset elsewhere and net investments were ``slightly positive,'' Chief Executive Officer Marcel Rohner said on a conference call today.

Losses already cost the jobs of former CEO Peter Wuffli, finance chief Clive Standish and investment banking head Huw Jenkins. Ospel, 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.

Taking Responsibility

``I ultimately take responsibility for the bank's situation,'' Ospel said in a statement.

Kurer, 58, who joined UBS in 2001, has been a member of the executive board since 2002. He previously worked at law firms Homburger AG and Baker & McKenzie in Zurich. Ospel told journalists on a conference call that Kurer was chosen because he ``has a profound knowledge of global financial markets and of course of our bank.''

Kurer headed Homburger's corporate transaction group and worked as counsel on mergers including Ciba-Geigy AG and Sandoz AG and the 1998 sale of British American Tobacco Plc's financial- services unit to Zurich Financial Services.

Ospel, a native of the northern Swiss city of Basel, has been UBS's chairman since April 2001. He was the driving force in the merger of Swiss Bank Corp. and Union Bank of Switzerland that formed UBS in 1998.

U.S. Expansion

In 2000, UBS bought New York-based broker Paine Webber Group Inc. for about $16 billion to build its equities business. The bank more than doubled profit between 2001 and 2006.

UBS expanded its fixed-income operations 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 was among the first stung by the subprime contagion when its Dillon Read Capital Management LP hedge fund, run by former investment banking chief John Costas, lost 150 million francs in the first quarter of last year. By May, following an internal review of the losses, UBS decided to close Dillon Read.

The company posted a 12.5 billion-franc loss in the fourth quarter, the biggest ever by a bank.

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.

The bank also set up a group about of 50 traders in January, whose task is to manage and reduce 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.''

Job Cuts

Rohner told journalists on a conference call today that the bank doesn't intend to conduct emergency sales of securities at ``distressed or inappropriate prices.'' He said UBS will determine how many jobs to eliminate in the next few weeks.

``UBS is aiming to put a line below its risk exposure problem and refocus on operational businesses,'' Kian Abouhossein, an analyst with JPMorgan, said in a note to clients.

Deutsche Bank, which operates Europe's biggest investment bank by revenue, said today that it expects to book first-quarter writedowns on leveraged loans, commercial real estate and residential mortgage-backed securities.

UBS's holdings of subprime assets fell to about $15 billion by the end of last month from $27.6 billion on Dec. 31, and Alt-A assets, which fall between prime and subprime, were cut to about $16 billion from $26.6 billion. Auction-rate securities positions, which are also subject to valuation uncertainties, rose to about $11 billion from $5.9 billion.

Raising capital again will mean UBS has to renegotiate the terms of the mandatory convertible bond it sold to GIC and the Middle Eastern investor.

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

Last Updated: April 1, 2008 14:44 EDT

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