Self-examination and self-help, 2007–2008

Capital from Singapore and the Middle East

UBS first tried to repair its balance sheet by its own means. On 10 December 2007, together with the write-downs of about USD 10 billion, it announced a set of measures that it expected to strengthen its tier 1 capital by CHF 19.4 billion. At the heart of the package lay mandatory convertible notes of CHF 13 billion, placed with two investors: the Government of Singapore Investment Corporation (GIC) subscribed CHF 11 billion, while an investor from the Middle East whose name was not disclosed took CHF 2 billion. The notes carried a coupon of 9 per cent until their conversion into ordinary shares, which was to take place within about two years. UBS also resold some 36.4 million treasury shares and replaced the cash dividend for 2007 with a dividend in the form of bonus shares.¹

The choice of investors carried meaning beyond the balance sheet. A Swiss bank that had long presented itself as a haven for foreign wealth now depended on the wealth of foreign states. Sovereign funds from Asia and the Gulf provided capital to several Western banks in the winter of 2007–08, and for a moment their willingness to invest was read as a sign of confidence in the long-term value of the franchises concerned. For UBS, the link to Singapore had a particular resonance, since Singapore had become the most important competitor of Zurich and Geneva in cross-border wealth management. The shareholders approved the necessary capital measures at an extraordinary general meeting in February 2008.²

The capital raised in December soon proved insufficient. Together with the write-downs announced on 1 April 2008, UBS proposed a rights issue of about CHF 15 billion, which the annual general meeting of 23 April 2008 approved.³ The issue was carried out in June 2008 and raised some CHF 15.6 billion. In April the bank had also placed hybrid tier 1 capital of EUR 1 billion.⁴ In the space of six months, a bank that had been one of the best-capitalised in Europe according to its regulatory ratios had thus raised close to CHF 30 billion of new capital from private sources, and still the losses outran the capital.

The Shareholder Report of April 2008

Alongside the capital raising, the bank undertook an unusual act of public self-examination. At the request of the Banking Commission, UBS prepared a report on the causes of its losses, which it published on 18 April 2008 under the title Shareholder Report on UBS’s Write-Downs. The report was verified by the bank’s auditors, KPMG, and concentrated on the net losses of some USD 18.7 billion on positions related to the American residential mortgage market in the year 2007. It attributed about two thirds of those losses to the CDO desk of the fixed income business of the investment bank, about 16 per cent to DRCM and about ten per cent to an asset-backed securities trading portfolio of the foreign exchange and cash collateral trading business, with the remainder spread over other fixed income activities.⁵

The report is a remarkable document because it named, in the bank’s own words, most of the failures that later investigations confirmed. It found that the growth strategy of 2005–06 had been pursued without corresponding risk constraints, that the risk control framework had relied too heavily on VaR and stress tests, and that the funding framework had enabled carry trades by making illiquid positions look profitable. It also listed compensation among the contributing factors, observing that incentive schemes had not differentiated adequately between returns earned by taking risk and other revenues. The authors stressed that the analysis was written with hindsight, and that the issues concerning the risk measurement and valuation of structured credit products had not been unique to UBS.⁶ Both caveats were accurate. Neither of them explained why a bank that described its own risk appetite as conservative had accumulated a larger exposure to super senior tranches than almost any competitor.

From the perspective of the Zurich financial centre, the report marked a change of style. Swiss banks had traditionally avoided public discussion of their internal failures, since the culture of discretion that Part F of this book traces from the Banking Act of 1934 onwards extended to the banks’ own affairs. The Shareholder Report, by contrast, addressed a global audience of institutional investors in the idiom of Anglo-American corporate governance. It answered a demand of the supervisor and of the capital markets simultaneously. Its publication set a precedent that UBS followed again in October 2010 with its transparency report to shareholders, discussed below.

Changes at the top

The personal consequences followed the financial ones. Peter Wuffli had left the group in July 2007. Huw Jenkins, the head of the investment bank, left in the autumn of the same year, when Marco Suter also replaced Clive Standish as chief financial officer.⁷ The decisive change concerned Marcel Ospel, who had led the Swiss Bank Corporation, engineered the merger of 1998 and chaired UBS since 2001. The Parliamentary Control Committees later established that in March 2008 the Banking Commission demanded Ospel’s resignation as chairman.⁸ He announced on 1 April 2008 that he would not stand for re-election.⁹

At the annual general meeting of 23 April 2008, the shareholders elected Peter Kurer, the bank’s general counsel, as his successor. Kurer was a lawyer without specialist banking experience, and several shareholders, among them the former UBS chief executive Luqman Arnold, questioned whether an insider without such experience should lead the bank through its recovery. Ospel told the meeting that the worst had been weathered and that the storm was gradually passing, a judgment that events soon contradicted. The board established a new risk committee under David Sidwell, a former chief financial officer of Morgan Stanley, and reduced the term of office of its members from three years to one.¹⁰ The Banking Commission’s annual report for 2008 described the change of chairman as part of a renewal of governance that it had requested, with an emphasis on stronger financial expertise on the board.¹¹

Marcel Rohner remained chief executive through the rescue, but informed the board in January 2009 of his intention to step down once the restructuring of the investment bank was completed. In February 2009 the board appointed Oswald J. Grübel as his successor. Grübel, who had been chief executive of Credit Suisse until February 2007, returned from retirement. His appointment was greeted by Swiss institutional investors as the best appointment available in the circumstances.¹² When Peter Kurer left the chairmanship in April 2009, the shareholders elected Kaspar Villiger, a former member of the Federal Council and head of the Federal Department of Finance, as chairman.¹³ The choice of a former finance minister to lead a bank that the Confederation had just rescued said much about the proximity between the bank and the state that the crisis had created.

Notes

1. UBS AG, Form 6-K, press release of 10 December 2007 (as above). ↩
2. UBS, “Annual General Meeting 2008” (archive of the 2008 shareholder meetings), https://www.ubs.com/global/en/investor-relations/events/agm/archive/2008.html, listing the extraordinary general meeting of 27 February 2008 in the St. Jakobshalle, Basel. ↩
3. swissinfo.ch, “Kurer replaces Ospel as UBS chairman”, 23 April 2008, https://www.swissinfo.ch/eng/kurer-replaces-ospel-as-ubs-chairman/6606786. ↩
4. Yale Program on Financial Stability, The New Bagehot Project, “Switzerland: UBS Capital Injection, 2008”, https://newbagehot.yale.edu/docs/switzerland-ubs-capital-injection-2008/. ↩
5. UBS AG, Shareholder Report on UBS’s Write-Downs (as above), breakdown of losses by business. ↩
6. UBS AG, Shareholder Report on UBS’s Write-Downs (as above), introductory caveats. ↩
7. swissinfo.ch, “UBS shakes up management after credit losses”, 1 October 2007, https://www.swissinfo.ch/eng/ubs-shakes-up-management-after-credit-losses/6172352, reporting the departure of Huw Jenkins as head of the investment bank and of Clive Standish as chief financial officer, his replacement by Marco Suter, and the announcement of a pre-tax loss at group level for the third quarter of 2007. ↩
8. GPK report of 30 May 2010 (as above), chronology of the Banking Commission’s interventions at UBS. ↩
9. IPE (as above). ↩
10. swissinfo.ch, “Kurer replaces Ospel as UBS chairman” (as above). ↩
11. Swiss Federal Banking Commission, Jahresbericht 2008, section on UBS, https://www.finma.ch/~/media/finma/dokumente/dokumentencenter/myfinma/finma-publikationen/geschaeftsbericht/jb08_d_ebk.pdf. ↩
12. IPE, “UBS’ Marcel Rohner resigns”, February 2009, https://www.ipe.com/ubs-marcel-rohner-resigns/30927.article. ↩
13. UBS, “Annual General Meeting 2009”, https://www.ubs.com/global/en/investor-relations/events/agm/archive/2009.html, for the meeting of 15 April 2009 in the Hallenstadion Zurich-Oerlikon, with speeches by the outgoing chairman Peter Kurer and by Kaspar Villiger. His role as chairman in 2010 is confirmed by UBS, “Annual General Meeting 2010”, https://www.ubs.com/global/en/investor-relations/events/agm/archive/2010.html. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.