Sunday, April 06, 2008 12:07:05 PM
The Mortgage Bust Goes Global
Alessandro Della Bella/Keystone
Associated Press
NELSON D. SCHWARTZ
April 6, 2008
Basel, Switzerland
When a shareholder asked him to step down at a meeting in Switzerland in February, the UBS chairman Marcel Ospel politely declined. He has since obliged.
In February, shareholders had harsh words for UBS’s leaders, including Marcel Ospel, left, Marcel Rohner and Luzius Cameron.
NORMALLY, St. Jakob’s Hall here is home to soccer tournaments or the occasional hockey game. But on a sunny morning in February, the stadium offered a corporate face-off every bit as contentious as any athletic event. More than 6,000 shareholders of the Swiss banking giant UBS packed the house to vent their fury over tens of billions in losses on American subprime mortgages and what they saw as an insult to traditional Swiss values like prudence and thrift.
The target of their anger wasn’t just UBS’s chairman, Marcel Ospel, or any of the bank’s other top executives, who were arrayed under a giant screen near where goalies usually tend the net. Instead, much of their ire was aimed at the United States itself — specifically an addiction to high-octane risk-taking, easy credit and dubious financial assumptions that created the domestic mortgage mess in the first place.
“The American El Dorado has become a scene from a Western,” declared one middle-aged shareholder, Therese Klemenz. “UBS was the figurehead of Swiss business. As a good housewife, I know you shouldn’t put all your eggs in one basket. A bank is not a casino.”
Thomas Minder, a local shareholder activist, was even more outraged. “What happened here is a scandal,” he thundered. “You’re responsible for the biggest loss in the history of the Swiss economy. Put an end to the Americanization of the Swiss economy!” At that point, Mr. Minder charged the podium, only to be dragged away by security guards.
While the housing slump has come to dominate American presidential debates and has sent Wall Street into a tailspin, the consequences of millions of foreclosures across the United States are also being felt far overseas. Nowhere is that more true than in this serene land of snowy peaks, ice-cold lakes and staid banks long considered to be among the most cautious in the world.
Until now, that is. That’s because UBS — with $3.1 trillion in assets, Switzerland’s biggest bank — made an astonishingly large bet on risky mortgage securities. At one point, that wager amounted to $80 billion, a gambit the bank lost. UBS has already been forced to write down about $37 billion of that financial roll of the dice — more than Citigroup, more than Merrill Lynch, more than any other bank in the world.
Last week, after enduring months of fierce criticism, Mr. Ospel abruptly announced that he would step down as chairman later this month. Shares of UBS rallied, but that’s cold comfort to people like Mrs. Klemenz, who have watched the stock drop by half since last summer.
IN Switzerland, they say, if you want to be nice, speak Italian. If you want to be understood, speak French. And if you want to be heard, speak German.
Like much of the financial and political elite here, Mr. Ospel is Swiss-German, and he speaks fluent English and French. But his style is definitely Teutonic. When a shareholder at the Basel meeting insisted on speaking in Italian, one of Switzerland’s four official languages, Mr. Ospel cut him off.
“You can speak Italian if you want to, but I won’t understand,” he said.
Looking out at the huge crowd over a pair of half-rim glasses, Mr. Ospel, 58, never lost his poise. When a shareholder named Jakob Trump called for him and the rest of the board to resign, adding that “a normal worker would be sacked for this,” Mr. Ospel coolly responded, “Danke, Herr Trump.”
But during an interview on Friday at UBS’s neo-Classical headquarters in downtown Zurich, the steely composure Mr. Ospel brandished at the Basel meeting was gone. Sitting in a plain white conference room adorned with maps of the world and the United States, his hands trembled and his eyes were cast downwards.
“I’m the chairman of this firm and ultimately responsible for what has happened,” he said, taking a long drag on a cigarette. “But I have the highest respect and confidence for the leadership as it is now in charge.”
Mr. Ospel said he first became aware of the extent of the threat UBS was facing in early August — three months after its Dillon Read Capital Management hedge fund unit was shuttered after big trading losses. This was six weeks after the implosion of two highly leveraged Bear Stearns hedge funds kicked off the credit crisis for the rest of Wall Street.
“I remember when I came back from summer vacation, Rohner explained we had this gigantic exposure,” he recalled, referring to UBS’s chief executive, Marcel Rohner.
Like others at UBS interviewed for this article, Mr. Ospel said the bank’s failure stemmed from a fundamental misreading of the market for mortgage securities. But he also acknowledged that the losses showed that UBS’s vaunted risk-management system had broken down.
“The key issue is that the system operated within its limits, given the assumed quality and liquidity of the assets,” he said. “Clearly, there was a problem when you build such a concentrated exposure and it doesn’t appear on any of the appropriate radar screens.”
MORE:
http://www.nytimes.com/2008/04/06/business/06ubs.html?pagewanted=2&ref=business
Alessandro Della Bella/Keystone
Associated Press
NELSON D. SCHWARTZ
April 6, 2008
Basel, Switzerland
When a shareholder asked him to step down at a meeting in Switzerland in February, the UBS chairman Marcel Ospel politely declined. He has since obliged.
In February, shareholders had harsh words for UBS’s leaders, including Marcel Ospel, left, Marcel Rohner and Luzius Cameron.
NORMALLY, St. Jakob’s Hall here is home to soccer tournaments or the occasional hockey game. But on a sunny morning in February, the stadium offered a corporate face-off every bit as contentious as any athletic event. More than 6,000 shareholders of the Swiss banking giant UBS packed the house to vent their fury over tens of billions in losses on American subprime mortgages and what they saw as an insult to traditional Swiss values like prudence and thrift.
The target of their anger wasn’t just UBS’s chairman, Marcel Ospel, or any of the bank’s other top executives, who were arrayed under a giant screen near where goalies usually tend the net. Instead, much of their ire was aimed at the United States itself — specifically an addiction to high-octane risk-taking, easy credit and dubious financial assumptions that created the domestic mortgage mess in the first place.
“The American El Dorado has become a scene from a Western,” declared one middle-aged shareholder, Therese Klemenz. “UBS was the figurehead of Swiss business. As a good housewife, I know you shouldn’t put all your eggs in one basket. A bank is not a casino.”
Thomas Minder, a local shareholder activist, was even more outraged. “What happened here is a scandal,” he thundered. “You’re responsible for the biggest loss in the history of the Swiss economy. Put an end to the Americanization of the Swiss economy!” At that point, Mr. Minder charged the podium, only to be dragged away by security guards.
While the housing slump has come to dominate American presidential debates and has sent Wall Street into a tailspin, the consequences of millions of foreclosures across the United States are also being felt far overseas. Nowhere is that more true than in this serene land of snowy peaks, ice-cold lakes and staid banks long considered to be among the most cautious in the world.
Until now, that is. That’s because UBS — with $3.1 trillion in assets, Switzerland’s biggest bank — made an astonishingly large bet on risky mortgage securities. At one point, that wager amounted to $80 billion, a gambit the bank lost. UBS has already been forced to write down about $37 billion of that financial roll of the dice — more than Citigroup, more than Merrill Lynch, more than any other bank in the world.
Last week, after enduring months of fierce criticism, Mr. Ospel abruptly announced that he would step down as chairman later this month. Shares of UBS rallied, but that’s cold comfort to people like Mrs. Klemenz, who have watched the stock drop by half since last summer.
IN Switzerland, they say, if you want to be nice, speak Italian. If you want to be understood, speak French. And if you want to be heard, speak German.
Like much of the financial and political elite here, Mr. Ospel is Swiss-German, and he speaks fluent English and French. But his style is definitely Teutonic. When a shareholder at the Basel meeting insisted on speaking in Italian, one of Switzerland’s four official languages, Mr. Ospel cut him off.
“You can speak Italian if you want to, but I won’t understand,” he said.
Looking out at the huge crowd over a pair of half-rim glasses, Mr. Ospel, 58, never lost his poise. When a shareholder named Jakob Trump called for him and the rest of the board to resign, adding that “a normal worker would be sacked for this,” Mr. Ospel coolly responded, “Danke, Herr Trump.”
But during an interview on Friday at UBS’s neo-Classical headquarters in downtown Zurich, the steely composure Mr. Ospel brandished at the Basel meeting was gone. Sitting in a plain white conference room adorned with maps of the world and the United States, his hands trembled and his eyes were cast downwards.
“I’m the chairman of this firm and ultimately responsible for what has happened,” he said, taking a long drag on a cigarette. “But I have the highest respect and confidence for the leadership as it is now in charge.”
Mr. Ospel said he first became aware of the extent of the threat UBS was facing in early August — three months after its Dillon Read Capital Management hedge fund unit was shuttered after big trading losses. This was six weeks after the implosion of two highly leveraged Bear Stearns hedge funds kicked off the credit crisis for the rest of Wall Street.
“I remember when I came back from summer vacation, Rohner explained we had this gigantic exposure,” he recalled, referring to UBS’s chief executive, Marcel Rohner.
Like others at UBS interviewed for this article, Mr. Ospel said the bank’s failure stemmed from a fundamental misreading of the market for mortgage securities. But he also acknowledged that the losses showed that UBS’s vaunted risk-management system had broken down.
“The key issue is that the system operated within its limits, given the assumed quality and liquidity of the assets,” he said. “Clearly, there was a problem when you build such a concentrated exposure and it doesn’t appear on any of the appropriate radar screens.”
MORE:
http://www.nytimes.com/2008/04/06/business/06ubs.html?pagewanted=2&ref=business
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