SWITZERLAND - Asset manager Ethos has demanded clarification from Swiss bank UBS about its losses incurred as a result of this year's credit crunch.
UBS announced last week it had to write down another $10bn (€7bn) on its US subprime holdings as the financial crisis continued, adding to the CHF726m (€436m) losses already reported for Q3.
"It is now possible that UBS will record a net loss attributable to shareholders for the full year 2007," the bank said in a statement, revising its outlook for a positive fourth quarter made at the end of October.
Global investment company GIC and another strategic investor have agreed to subscribe to an issue of CHF13bn of mandatory convertible notes but this measure has to be approved at an extraordinary general meeting (EGM) which will take place in mid-February 2008.
At this meeting, Ethos - specializing in sustainable investment with CHF2.5bn in assets under management - will demand detailed information on the reasons behind the losses.
Should the answers received be insufficient the manager founded 10 years ago by two Geneva-based pension funds intends to use its right as a shareholder to call for a special external audit.
"As long-term investors, we have to make sure the causes for the massive write-offs have been fully identified," noted Dominique Biedermann, chief executive of Ethos.
"For Ethos, the request for information and the request for a special audit should bring to light potential risk management and risk control dysfunctions […] to ascertain compliance with the law and to help enhance future procedures," the firm said in a statement.
The main points Ethos are seeking clarity on are the independence of risk control from risk management, the limit to the volume of high-risk transactions and the existence of a special internal audit in 2006 or 2007.
At the end of November, rating agency Moody's downgraded UBS' bank financial strength rating (BFSR) from A- to B+ because of "significant net exposure of $39bn to subprime-related securities at the end of September".
Moody's noted the exposures had a "large loss content" but were "manageable within the bank's strong earnings capacity and high capital levels".
At the extraordinary general meeting, questions will also be asked about CHF 1.5bn losses reported earlier this year linked to the closure of its hedge fund venture Dillon Reed Capital Management. (See earlier IPE story: UBS feels costs of DRCM closure)
Following this closure, UBS restructured its senior management starting with the replacement of CEO Peter Wuffli. (See earlier coverage: UBS changes top team and cuts 1500 jobs)
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