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Apr-13-2008UBS to Split Chairman's Office Into Committees (Update1)(topic overview)
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If clients put fewer assets in the care of Credit Suisse and UBS, "this could undermine a critical remaining pillar of support for the share price," the brokerage firm said. This time around, all the pointers are aimed toward a loss. Millionaires are parking their cash in low-margin money market funds and have reduced leverage as plummeting stock markets eat into their assets. That means banks may watch their fee income drop at an even faster pace than the market. Turnover of structured products in Switzerland is down 14 percent so far this year, according to data for March from the countrys stock exchange, indicating that clients are pulling out of a range of banks most lucrative and complex products. Clients are also reducing their trading activities, banks say, depressing another source of income. For Swiss banks there is an adverse currency effect, as the Swiss franc has strengthened thanks to its status as an investment haven. UBS, the worlds largest wealth manager, this month acknowledged that subprime problems in its investment bank were spreading to its private banking operations, saying clients in Switzerland had withdrawn money in the first quarter. The bank said it still expected "positive" inflows in its private client business, but sounded a lot less confident than last year, when it collected a whopping 156.3 billion Swiss francs, or $154.6 billion, in net new private client money. [1] ZURICH (Reuters) - Credit Suisse could announce further writedowns of up to 5 billion Swiss francs ($4.99 billion) when it posts its first-quarter results later this month, Swiss media reported over the weekend. Swiss newspaper Tages-Anzeiger reported on Saturday the bank could face a first-quarter loss of up to 2 billion francs and further writedowns of around 4 billion francs, according to its own research. NZZ am Sonntag said on Sunday the bank would announce writedowns of between 3 billion francs and 5 billion francs when it posts its figures for the first quarter on April 24, without giving any sources. Credit Suisse has so far written down 5.8 billion francs and last month said it could report its first quarterly loss in five years as unprecedented market conditions in March had introduced new uncertainty.[2] Olivant declined to identify the investors who are supporting the campaign, the newspaper said. Separately Tages-Anzeiger newspaper, citing its own research, reported today that rival Credit Suisse Group may write down about 4 billion Swiss francs ($4 billion) in the first quarter and post a loss of between 1 billion and 2 billion francs.[3]
The departures of David Blumer, the former chief executive of asset management, and global securities chief Michael Ryan "are a signal that Credit Suisse must undertake price corrections and that a further writedown of billions is imminent,'' the Zurich-based newspaper said. Credit Suisse said March 20 it will write down a combined $2.65 billion in the fourth quarter of 2007 and the first quarter of 2008, making a profit this quarter "unlikely.''[3] Blumer quit Credit Suisse on April 2 to join Swiss Reinsurance Co. as head of financial services. At the bank he oversaw a 247 million-franc loss in the fourth quarter as the asset management unit purchased securities from Credit Suisse's money market funds.[3] The country'''s largest dedicated private bank with a stock-market listing, Julius Baer, holds no mortgage-backed securities and is exclusively engaged in asset management, not investment banking or other banking activities. Switzerland'''s second-largest bank, Credit Suisse, however, does have losses tied to sub-prime; the bank is absorbing these losses and won'''t issue new rights or dilute existing shareholders''' equity to finance losses.[4]
Credit Suisse declined to comment on the reports. The company has fared better than Swiss rival UBS, which has written down around $37 billion in assets and cleaned out most senior management, including its chairman, after asking investors for emergency cash twice in two months, making it the world's hardest-hit bank from the subprime crisis.[2]
"What were talking about are 5 to 15 percent declines in pre-tax profit." "It isnt disastrous," he said, but it is "a small downturn, having had a very strong period of above-average growth." That would be bad news for UBS, reeling from $37 billion in credit write-downs, the heaviest reported in the industry so far, and for Credit Suisse.[1]
Rival UBS reported a 12 billion-franc loss in the first quarter, after making writedowns of $19 billion on debt securities in the first three months of the year, bringing the total to almost $38 billion since the third quarter of 2007.[3] Union Bank of Switzerland (NYSE-UBS), or UBS, the country'''s largest bank, has tallied enormous losses now worth $37 billion dollars or about 20% of the total global sub-prime bill thus far. UBS takes the booby-prize in this category ''' more than Citigroup, Wachovia or Merrill Lynch. The losses are embarrassingly huge for a Swiss bank which has spent more than 150 years building its brand name image worldwide and until recently, was ranked among Europe'''s top five largest banks based on stock-market capitalization.[4] Wealth managers, who invest on behalf of rich clients, have witnessed soaring growth rates in recent years, benefiting from stable fee income regardless of performance, which balance out the wild swings in investment banking income. The MSCI global index has dropped 7 percent so far this year and the FTSE Eurofirst 300 index has fallen 13 percent. Large banks will feel the impact not just in their private banking units but also on a group level. In a recent note, Goldman Sachs said its estimates for earnings per share for private Swiss banks for the 2008-2010 period were being revised down by 4 percent to 6 percent.[1] UBS still harbors a very profitable private banking unit and that'''s what shareholders want to keep; the investment banking arm, however, the cause of the current hardship, is likely to be sold at a fire-sale price. Other Swiss banks, however, have barely been jolted by sub-prime.[4]
One equity analyst at a large bank said that in the last downturn, in 2001 and 2002, profits were down for two years in a row. Substantial private banking units at Citigroup, Merrill Lynch and Deutsche Bank might also be hit, though their results lean much less heavily on private banking than at the Swiss banks.[1]
Private banking makes up roughly a third of the revenue at the two Swiss banks.[1]
Former UBS President Luqman Arnold, whose Olivant Advisers Ltd. holds 0.7 percent of UBS stock, has called for a banking expert to be chairman, instead of Kurer, a lawyer. Olivant has the support of about a dozen institutional shareholders in its campaign for changes to the Swiss bank's corporate governance, the Financial Times reported today.[3] Rumors now swirl throughout Zurich that UBS will be carved into separate units as shareholders grow increasingly frustrated with management. The stock has collapsed more than 50% from its high last year as bad-loan provisions continue to mount like a bad dream. UBS has raised money from Singapore and undisclosed Middle Eastern investors to shore-up its flagging capital ratios.[4]
I'''m not losing sleep. UBS is still a brand name in private banking and separating the tattered investment banking unit will concentrate its focus on wealth management ''' an area that should be management'''s top priority. Despite troubles and bad press at UBS, Switzerland'''s economy is still growing in 2008 while the franc has finally regained its luster vis-''-vis the euro.[4] Baer, like other small wealth managers in Switzerland, has said it is winning clients from large rivals like UBS, benefiting from the fact it has no exposure to investment banking and has escaped damage from the subprime mortgage crisis.[1]
The seeds of destruction were first laid back in 2000 when UBS bought Paine Webber and Warburg Pincus in the United States. That was the beginning of big trouble as the Swiss giant began to aggressively expand into derivatives and investment banking.[4]
The Swiss convey a strong sense of conservatism among global investors. That'''s what has made Switzerland'''s financial institutions rock-solid. It'''s been that way for more than 150 years and approximately one-third of all private and institutional deposits are parked in this beautiful Alpine country. [4] Ryan left the bank after less than a year as global securities chief. A memo sent to Credit Suisse employees announcing his departure April 10 didn't give reasons.[3] Credit Suisse, which is due to announce first-quarter results on April 24, warned last month about a possible loss for the period as mispricing of debt securities would lead to writedowns.[3]
Stock markets have dropped about 10 percent so far this year, hurting the assets of millionaire clients. [1] The UBS Chairman's Office, currently composed of retiring Chairman Marcel Ospel and executive Vice-Chairman Stephan Haeringer, met 15 times last year to discuss the bank's risk profile, decide overall strategy, set salaries and bonuses, and screen nominations for executive positions, the company's Web site says.[3] The Swiss franc, for the first time in history, now trades at par-value against the sagging American dollar.[4]
SOURCES
1. Outlook gloomy for Swiss private bankers - International Herald Tribune
2. Credit Suisse may make 5 billion Sfr writedowns: report | Reuters
3. Bloomberg.com: Europe
4. Eric Roseman's Eruptions: Stocks, Global Markets and Commodities BLOG: UBS Jolts Swiss Morale
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