UBS shareholders approve $12 billion investment from Singapore, Mideast wealth funds

28 February 2008

BASEL – UBS AG shareholders overwhelmingly approved a US$12 billion capital infusion from foreign, government-owned funds on Wednesday aimed at shoring up Switzerland’s largest bank in the face of massive losses linked to the US subprime mortgage crisis.

At an extraordinary meeting of shareholders, UBS Chairman Marcel Ospel pushed through the recapitalization deal reached with so-called sovereign wealth funds based in Singapore and an unidentified Middle East country.

He also fended off calls for him to resign, as some shareholders vented their anger over the CHF15.6 billion Swiss francs the bank was forced to write down last year in assets linked to bad US debts.

UBS posted its first full-year net loss in a decade in 2007 – a result which shocked investors, who had considered UBS one of the more conservative financial institutions.

The meeting Wednesday grew increasingly tense, and was at one point briefly interrupted when an angry shareholder attempted to storm the stage where the bank’s board was presiding. He was restrained by security.

Ospel said he was determined to steer UBS back to financial health.

“I would never thoughtlessly relinquish my responsibility, and I intend to ensure that UBS gets back on the road to success,” he told some 6,500 shareholders that packed a Swiss arena for the meeting.

Ospel also scored a victory when shareholders rejected a special audit of the bank’s massive losses.

Dominique Biedermann of the Ethos investment foundation, one of UBS’ chief critics, said the independent audit was necessary because UBS has failed in its responsibility to investors. Ospel, however, said the bank was already cooperating with Switzerland’s federal banking commission on a thorough probe.

Investors holding over 363 million shares outvoted those holding some 314 million shares to reject the special audit. Proponents can still appeal to a Swiss court.

Ospel urged shareholders to back the board’s plan to raise CHF11 billion from the Singapore government fund and CHF2 billion from a Middle East investor.

“We believe that this measure is absolutely necessary,” Ospel said, calling the current financial crisis possibly the most difficult since the stock market crash of 1929.

The proposal angered smaller shareholders, who said they were being bypassed in the recapitalization effort, because it will dilute their holdings. But investors holding over 87% of voting shares backed the plan.

Ospel, one of three board members standing for re-election in April, attacked those who suggested the bank had withheld information about its exposure to risky mortgage-backed investments. “That charge is nonsense,” he said.

“We have always provided information as soon as possible and as completely as possible, and we will continue to do so going forward.”

The company said earlier this month that its direct subprime-related exposure stood at US$27.6 billion at the end of 2007.

UBS shares, which have more than halved in price over the past year, reversed earlier intraday losses on the news and were up 1.1% at CHF37.50 in Zurich.

UBS also is facing a lawsuit from Germany’s HSH Nordbank AG, which said Tuesday it is suing the Swiss bank for US$275 million in damages over losses stemming from mortgage securities it bought from UBS. The company accused UBS of fraudulent actions related to US$500 million in collateralized debt obligations.

UBS said it denies all allegations and intends to defend itself vigorously.

The bank said Wednesday it plans to countersue HSH in London.

HSH is one of many German banks, such as WestLB and SachsenLB, suffering from mortgage-related investments gone sour.