KEY POINTS:
The world's largest asset manager, the investment bank UBS, is facing the most profound crisis in its history, as huge losses, legal battles and a shareholder rebellion place its management under unprecedented pressure.
On Wednesday, an extraordinary general meeting will be held at which board members will be
forced to defend their stewardship of the bank, while it emerged yesterday that a state-owned German bank is to sue UBS for "significant" losses on a US$500 million ($619 million) portfolio of securities, allegedly mis-sold to it by the Swiss-based institution.
Some 70 per cent of the securities were backed by US sub-prime mortgages.
HSH Nordbank, a regional bank centred on Hamburg, said that "UBS appears to have condoned actions which benefited only itself, at the expense of its clients".
The investments were sold by UBS in 2002 via a vehicle named North Street 4. The claim against UBS will be filed in New York over the next few days.
The claim may prove to be the first of many throughout the global financial system and could intensify the credit crunch, as banks become even less willing to lend to one another and seek to "hoard liquidity" in case of vastly expensive lawsuits and other misfortunes.
A number of German landesbanks were tempted to diversify into higher risk asset-backed securities and may follow HSH's lead into litigation.
The news will be unwelcome to UBS, already in more difficulties than the majority of its peers. Last week, UBS surprised the markets and sent its shares sliding with the announcement that it had US$26.6 billion of additional exposure to the stricken American mortgage market.
Losses on US loans pushed UBS to a US$4 billion loss for 2007. In December, the bank warned of a US$10 billion exposure to sub-prime problems.
Its total exposure to risky loans is variously estimated at US$80 billion to US$100 billion. The US Securities & Exchange Commission has launched an inquiry into whether UBS correctly marked-to-market its sub-prime securities.
The legal challenges now faced by the bank will add to the pressures on the chairman of UBS, Marcel Ospel, to quit. Marcel Rohner, the chief executive, has admitted that last year was "one of the most difficult in our history", adding that "UBS expects 2008 to be another difficult year".
UBS has already lost one very senior figure in the last year: Peter Wuffli stepped down as chief executive in July, reportedly because of the poor performance of an internal hedge fund.
A few weeks ago headhunters were asked to find a new executive vice-chairman for UBS, with a view to replacing Ospel when he steps down, but with no success.
Even before the latest revelations, Ospel was preparing for intense scrutiny at this week's EGM.
UBS needs shareholder approval for its plans to shore up its balance sheet by raising US$12 billion from sovereign wealth funds in Singapore and Saudi Arabia.
- INDEPENDENT