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Portfolio > Alternative Investments > Real Estate

UBS Shifting Strategies as Write-Downs Continue

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With UBS expecting to write down $19 billion in the first quarter of 2008 on U.S. real estate and related structured credit positions and a reported net loss of about $12 billion, its chairman — Marcel Ospel — is not seeking re-election at the firm’s annual meeting on April 23. In addition, the brokerage firm has completed a rights issue, fully underwritten by four international banks, to raise some $15 billion. This comes about three months after write-downs of some $10 billion were announced by the Swiss-based institution.

“We believe this capital increase and the creation of a vehicle to separate problem assets from the remainder of our businesses will allow us to return to sustainable value creation over time,” says CEO Marcel Rohner.

Still, the firm’s situation is by no means fully resolved, as Rohner acknowledges. “However, the environment remains difficult, and while we are committed to further substantially reducing our exposures we do not want to undertake sales of positions at severely distressed levels,” he explains.

In the quarter ended December 31, UBS wealth-management operations in the United States included nearly 8,250 advisors, up 5 percent from 7,900 a year earlier and up 1 percent from 8,175 in the quarter ended September 30, according to company reports. Revenue or sales per advisor stood at $179,000 for the fourth quarter, a jump of $6,000 from the third quarter.

Client assets for the unit stood at about $850 billion. Net new money in the fourth quarter, about $8 billion, was up from roughly $5 billion in the earlier period. For the full year, net new money totaled about $25 billion.

Pre-tax profits for the U.S. wealth-management unit, led by Marten Hoekstra, for the full year grew about 25 percent to roughly $700 million. In fourth quarter 2007, pre-tax profit was up about 15 percent to $180 million.

In the first quarter of 2008, UBS says, it substantially reduced its real-estate related positions through both valuation adjustments and significant disposals. It also has formed a new unit to hold certain currently illiquid U.S. real estate assets.

At the firm’s annual meeting, UBS General Counsel Peter Kurer will be presented as the successor to Marcel Ospel, pending approval by shareholders. “I consider this appointment an honor and great challenge” says Kurer. “I am committed to doing everything I can, in the interests of shareholders, clients, employees and the communities in which we do business, to further help UBS return to success.”

“I have always stated that I ultimately take responsibility for the bank’s situation,” says outgoing Chairman Opsel. “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. On this basis, I remain very confident in the future prospects of UBS.”

“The events since the summer of 2007 have affected the bank to an unexpected degree and have proved a great challenge for management and for the board of directors. Marcel Opsel resolutely led the bank through these difficult times and made a decisive contribution to solving its problems,” says Sergio Marchionne, vice chairman of UBS and CEO of the Fiat Group.

Recently former UBS President Luqman Arnold, a British investor, has organized a campaign calling for UBS to separate its investment bank from the private-client bank and possibly sell the investment bank, along with its asset-management business. Arnold, whose Olivant investment company has close to a 1 percent stake in UBS, also advocates that Marchionne — praised for turning around results at the Italian carmaker he leads — should be elected interim chairman.

Janet Levaux is the managing editor of Research; reach her at [email protected].


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