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Swiss bank becomes major victim of subprime crisis

ZURICH - Switzerland’s leading USB bank was the latest and potentially biggest victim so far of the US subprime market crisis, announcing losses of 4 billion Swiss francs (3.4 billion dollars) in its investment business in a statement Monday.

It said it would undergo major restructuring with the loss of 1,500 jobs before the end of the year in its investment bank. There would also be a significant management shake-up.

The bank predicted group pre-tax losses of between 600 million and 800 million francs for the third quarter, compared with profits of 5.62 billion francs in the previous quarter.

It was the first quarterly loss in almost a decade.

‘Our first quarterly loss in nine years is an unsatisfactory result, especially after such a strong first half. I have therefore taken decisive action to be as transparent as possible,’ group CEO Marcel Rohner said.

The bank, which employs more than 71,000 people worldwide, took the biggest hit in investments due to the credit squeeze brought about by the subprime mortgage meltdown.

Rohner said the bank had been wrong to focus on ‘very illiquid, long-dated risk’ while the balance sheet ‘grew rather rapidly.’

He denied the bank’s risk management had failed. ‘We kind of drove the business growth into this high-volume, high-liquid, high-grade exposure,’ he said.

‘What has happened is that what was historically very safe and low volatility turned through the very serious market dislocation in the US mortgage-backed securities market into a high-correlated credit type of exposure. ... This was not foreseen by our risk framework,’ he added.

Pre-tax profits for the group for the first nine months of 2007 were expected at around 10 billion francs and were still due to be announced on October 30. The bank said it expected to end the year with a good level of profits.

The head of the investment bank Huw Jenkins is to step aside to become a senior advisor to Marcel Rohner.

Rohner, who was only named Chief Executive in July after the sudden departure of Peter Wuffli due to hedge fund losses, is to assume control of the investment bank, while UBS chief financial officer Clive Standish is to retire.

UBS Swiss banking rival Credit Suisse said it was also hit by the credit crunch. However it announced it would remain profitable during the third quarter of 2007 with income of around 1.3 billion Swiss francs. Its third quarter results will be published on November 1.