http://www.theaustralian.news.com.au/story/0,25197,23493707-20142,00.html
The UBS chairman had spent the weekend in board meetings.
Although the financial markets were focused on the imminent rescue
of the US investment bank Bear Stearns, UBS had uncovered problems
of its own.
A tortuous analysis of the bank's remaining exposures to
sub-prime mortgages in the US had confirmed that Switzerland's
biggest bank would have to launch an enormous rights issue to shore
up its balance sheet.
Ospel told Wall to begin rallying the troops. Within 48 hours he
and his team had their backers in place.
Top of the list was JPMorgan Chase, which had just completed its
Bear Stearns bailout. It was joined by Morgan Stanley, Goldman
Sachs and BNP Paribas.
The same four banks had helped Societe Generale raise cash in
the wake of their rogue trader scandal weeks earlier. They were the
first that UBS approached in its time of need.
Two days later, on Good Friday, the banks were pulled together
for a series of conference calls with the UBS senior management
team, and over the following week they fine-tuned the details on
what would become a pound stg. 7.4 billion ($16 billion) cash
call.
Within the inner sanctum of Wall Street's ruling elite, it was
an open secret that UBS was about to announce huge write-downs and
a new fundraising exercise.
"A lot of the Swiss establishment had been calling for Marcel's
head for some time," says one UBS executive. "When the size of the
fundraising became apparent there was no way he could stay on."
By the time Ospel walked into the boardroom of the bank's Zurich
headquarters last Monday night, he had made up his mind. He would
have to stand down -- his dream of turning a Swiss private bank
into a global financial powerhouse had turned to dust.
On Friday an old adversary emerged with a plan to undo Ospel's
work. Rebel shareholder Luqman Arnold, who was forced out of UBS in
2001 following a row with Ospel, called for the bank to sell its
asset management business, along with its Brazilian and
Australasian operations.
The former chief executive of the British mortgage bank Abbey --
and now head of the investment vehicle Olivant -- also demanded UBS
hive off its investment bank from its private banking operations.
Ospel's humiliation was complete.
Ospel had been one of the great survivors of the global credit
crisis. He clung to office while Chuck Prince fell on his sword at
Citigroup and Stan O'Neal was forced out at Merrill Lynch.
He became UBS chief executive after leading the reverse takeover
of the old Union Bank of Switzerland by the Swiss Bank Corp (SBC)
in 1998. UBS had been laid low by the collapse of Long-Term Capital
Management and long-running legal battles related to tracing assets
held by victims of the holocaust.
In his time at SBC, Ospel did a string of deals, buying British
merchant bank SG Warburg, then the US-based derivatives business
O'Connor. He later added US brokers Paine Webber and Dillon
Read.
The old UBS had bought Philips & Drew, among other things.
The combined bank would conquer the world, according to Ospel.
"Marcel built UBS from nothing," says one of his former key
lieutenants.
"We were the first European bank to really take on Wall Street
on their own patch. That was all down to Marcel."
Ospel, who came from a relatively poor family in Basel and
worked his way up without a university degree, became chairman in
2001 -- Luqman Arnold was chief executive. Ospel had not been long
in the chairman's seat when Swissair, the Swiss national airline,
collapsed. He pledged the bank's support to a rescue without
involving the board. A furious Arnold attempted to stand up to
Ospel. In the end it was Arnold who was forced out.
Critics of Arnold claim that his attack on Ospel's legacy is a
straightforward act of revenge.
"Luqman didn't realise that while he was notionally the chief
executive, he wasn't in charge of anything really," says a former
UBS executive who remains close to Ospel. "Marcel ran that
bank."
Another former UBS executive said: "Marcel was never someone to
jump around or raise his voice. But he's all about ego. He always
wanted to be bigger than the Americans. That seems to be why
they've ended up where they are today."
Ospel's aim to conquer Wall Street took shape with the
appointment of John Costas as chief executive of investment
banking. Costas, who had been poached from arch-rival Credit
Suisse, was given licence to splash out on big-name investment
bankers.
Costas and his team developed the strategy of investing in
mortgage-backed securities. By June 2005 he committed himself to
the project full-time, stepping down as investment banking head to
set up Dillon Read Capital Management (DRCM), an internal hedge
fund. The traders left to run the UBS book followed their former
leader into the sub-prime bets.
"Ospel is the best banker in Switzerland by a mile," one UBS
executive in London says. "But he was still the guy who sat on the
risk committee while everything was ploughed into US mortgages. At
its peak our balance sheet was $US2.3 trillion. It got to a point
where $US400 billion of that was held in US mortgages. John Costas
made those decisions and Ospel let him."
Donald Marron, former chairman of UBS America, said he has been
"surprised at the breadth of the problem" the sub-prime crisis had
triggered.
Marron, now chairman of venture capital firm Lightyear Capital,
won't comment specifically on his former firm's woes but says
credit standards were lowered across the board, "not just in
mortgages", and that "risk was not repriced to account for
this".
"Banks went from being long-term lenders to packagers. That's
obviously a very different dynamic. It's not that people didn't
figure out that there were issues, it's just that once they did
there was no liquidity in the market," he says.
Losses in DRCM began to emerge a year ago. By last May it was
closed down after published losses hit pound stg. 190 million.
Costas left UBS, but it was too late to get out of the
positions.
A slew of top executives followed Costas out of UBS. Eventually,
Peter Wuffli, the UBS chief executive, was fired. Ospel, however,
stayed put -- until last week.
A $US3 billion fundraising announced last week by Lehman
Brothers served as a reminder that UBS is not the only bank in
trouble. That was followed by a further $US4 billion of sub-prime
write-downs by Deutsche Bank.
Merrill Lynch is expected to announce more write-downs with its
forthcoming results.
Expectations are mounting that Citi's new boss, Vikram Pandit,
is poised to go cap in hand to sovereign wealth funds for another
injection of capital.
"Since the start of the year, particularly in March, there has
been further deterioration in asset quality," Jon Peace, an
investment banking analyst at Lehman Brothers, says. "Citi and
Merrill have been heavily involved in what are now recognised as
the most problematic types of investment. They will have to take
further marks against those assets, which will lead to further
write-downs."
The pain has not been confined to
UBS's senior staff, who received 80 per cent of their pay last year
in shares. GIC, the investment arm of the Singapore government, is
sitting on paper losses of about pound stg. 2.4 billion on its
pound stg. 6.5 billion bailout of the bank late last year. The fund
has also pumped money into Citi's $US12.5 billion fundraising
earlier this year.
The Abu Dhabi Investment Authority is nursing paper losses of
close to pound stg. 1 billion from the capital injection it gave to
Citi in November.
The Kuwait Investment Authority, Korea Investment Corp and
Mizuho Corporate Bank are estimated to have combined losses of
around pound stg. 450 million from their January capital injection
into Merrill Lynch.
China Development Bank and Temasek, which bought into Barclays
to support the British bank's attempted bid for ABN AMRO, have made
paper losses of about pound stg. 900 million on their
investment.
In spite of the losses, sovereign wealth funds are likely to be
prepared to shell out again. If the global banking system is to get
back on its feet, new capital is likely to be needed and the
sovereign wealth funds are the only investors with serious cash in
their coffers.
Until and unless they do, the global banking nightmare seems far
from over.
The Sunday Times
