Swiss Banking News: August 2008

29.08.2008 In accordance with to figures from the Federal Statistics Office (FSO) on the annual national accounts, the Swiss economy recorded even stronger GDP growth in 2007 than it had been previously estimated. The GDP rose by 3.3% in real terms in 2007. The strong growth has, to a large extent, been conditioned to Switzerland's financial sector that went on expanding despite any threats from the current credit crunch. As regards the likely effects of the credit crunch, the FSO announced that "while the crisis had no direct impact on the output of the financial institutions located in Switzerland and on GDP 2007, indirect effects could show up in 2008"

14.08.2008 After a 2nd quarter loss of CHF 358 million (USD 330 million) was recently reported, Swiss bank UBS AG announced its intention to split company's investment and wealth management divisions. This decision followed a review of the banks's strategy by the UBS Board of Directors and the Group CEO. The review came to the conclusion that changes are needed to strategic direction and a comprehensive program to re-engineer the bank's business.
Now, UBS will operate as a Group with autonomous business divisions. This move will make the bank more "effective and agile in managing trends in the financial industry". The new business model should also enhance the incentive for each business division to be successful without relying on capital and funding rate cross-subsidies from the other businesses. Peter Kurer, Chairman of UBS, explained, "The new structure will create a spirit of transformation, clear accountability and transparency, and will allow us to optimize funding and capital usage. This repositioning of the Bank will create maximum strategic flexibility to capture the best possible opportunities for shareholder value creation in the future".
The UBS change program is expected to be completed by the end of 2009.

12.08.2008 Two UBS operations and the US Securities and Exchange Commission reached a preliminary settlement over the bank's treatment of investors in auction rate securities (ARS). The settlement included proposed charges and a plan to restore about USD 22 billion in liquidity to those who invested in auction rate securities. The plan includes about USD 8.2 billion for individual investors, small businesses and charitable organizations, USD 3.3 billion for holders of tax-exempt Auction Preferred Shares (subject to regulatory review), and USD 10.3 billion for institutional investors.
It should be reminded that as the ARS market collapsed in mid-February 2008 it left over 40 000 UBS customers holding the illiquid securities indefinitely. But the liquidity of the securities was premised on UBS providing support bids for auctions that were managed by the bank when there was not enough customer demand, however, this was not disclosed to customers in an appropriate way. In February 2008 UBS stopped supporting auctions and this led to widespread auction failures for UBS customers.