Swiss SRI investor demands $13.7bn sub-prime loss audit by UBS

Investors increase action over multi-billion dollar banking sub-prime write-offs.

Ethos, the Geneva-based foundation which looks after CHF2.3bn (€1.4bn) in assets run on a socially responsible basis on behalf of Swiss pension funds, has demanded that UBS, the Swiss banking group, bring in external investigators to carry out a special audit explaining how it lost $13.7bn (€9.6bn) as a result of the US sub-prime mortgage crisis.
Significantly, Ethos said it wanted to know whether some investors, notably the Singapore Investment Corporation, had received “privileged” information on the decision of the UBS board to increase the bank’s capital with new shares on December 10.
The Singapore Investment Corporation earlier this month invested CHF11bn (€6.6bn) in the bank alongside an unnamed Middle East investor who injected CHF2bn in additional capital.
Ethos said it was asking UBS to clarify the legal position of the share sale.
Investors are increasingly taking action over more than $50bn in losses incurred by investment banks due to sub-prime exposure. Barclays Bank has reportedly filed a lawsuit in New York accusing Bear Stearns, the US investment house, of hiding losses in a fund investing in mortgage-backed securities, which lost the UK bank $400m (£200m). UK newspaper The Guardian said Barclays described the fund’s demise as “one of the most high profile and shocking hedge fund failures in the last decade”.Ethos, a long term UBS shareholder, said it wanted the audit request to be added to the agenda of the UBS extraordinary general meeting of shareholders in mid-February 2008. It said other questions covered by the audit should include the independence of UBS’ risk control division from risk management and the limits the bank placed on high-risk transactions. It is also requesting full disclosure of the pay system for risk control staff. Ethos said clarification was also necessary over risk control management relating to Dillon Reed Capital Management, the group’s hedge fund trading subsidiary, which was folded back into the bank earlier this year after reportedly losing hundreds of millions of dollars. It said auditors should look at whether there was any possible case for UBS to restate its 2006 accounts. The fund manager is also questioning whether shareholders were treated equally over priority rights to subscribe to convertible bonds.
In a statement, Ethos said: “In order to clarify the circumstances that drove the bank to this situation, for Ethos, the request for information and the request for a special audit should bring to light potential risk management and risk control dysfunctions. Ethos has decided to take this step for two reasons: to ascertain compliance with the law and to help enhance future procedures.” A spokesman for UBS said: “We are aware of Ethos’ request and will answer their questions diligently.”