A former president at UBS AG urged the Swiss bank to spin off its investment unit following massive losses related to the subprime crisis.
Luqman Arnold’s spoke after UBS reported writedowns of $37.4 billion for the past nine months — so far the largest reported by any bank with exposure to U.S. defaults on risky mortgages.
“We are not convinced that the ‘one bank’ integrated business model that has served UBS well in the past will survive the damage inflicted by the proprietary trading losses and writedowns,” Arnold said in a letter from his London-based investment bank Olivant Limited.
The letter, posted on the Olivant Web site, was first reported by The Wall Street Journal in Friday’s editions.
Arnold’s proposal is likely to be supported by some investors who have said UBS should consider splitting off its private client bank from the investment bank, which they blame for moving the traditionally conservative bank into trading high risk mortgage securities.
He noted that Olivant owns more than 0.7 percent of UBS shares and said it would favor greater separation and independence of the Swiss bank’s major units. His letter, dated Thursday, was addressed to designated UBS Vice Chairman Sergio Marchionne.
UBS officials have stuck to the bank’s integrated model, which can offset losses in any one unit with profits in others.
Arnold was dismissed as UBS president in 2001, after just eight months in office over “differences in opinion.”
UBS on Tuesday reported more serious damage from the subprime crisis, saying it would post a first-quarter net loss of $12.1 billion and that it would seek 15 billion Swiss francs ($15.1 billion) in new capital.
The bank, Switzerland’s largest, announced losses and writedowns of approximately $19 billion in the first quarter on U.S. real estate and related credit positions.
Arnold also criticized the appointment of Peter Kurer to succeed power-broker Ospel as chairman. Ospel announced Tuesday that he’s stepping down. Arnold said Kurer lacks the strategic and risk management skills specific to the Swiss market.
The bank should hire a non-executive as chairman, he added.
UBS shares rose 2.1 percent to 33.08 francs ($32.68).
Arnold said UBS “needs to act with urgency.”
Olivant, he added, is “cautious about the prospects for the U.S. housing market and the outlook for credit markets.”
UBS spokeswoman Tatjana Domke confirmed that the bank had received the letter and said it would respond in due course.
