Bankruptcy

USB Faces Shareholder Pressure

By J. Michael McBride

"The flagship bank of Switzerland, UBS, is in deep trouble.

Not only did it recently report its first ever annual loss, of 4.4 billion Swiss francs, or $4 billion, as well as 21 billion francs in write-offs and an estimated $88 billion in additional exposure to risky U.S. investments, but the chairman is also facing mounting opposition from shareholders to his proposed rescue plan - the sale of a roughly 10 percent stake to investors from Singapore and the Middle East. Critics fear that could give a rival financial center influence over one of the biggest banks in Europe.

On top of all that, a German bank, HSH Nordbank, filed a lawsuit in New York on Tuesday over $275 million in losses it said that it had suffered on some $500 million of complex debt products that it bought from UBS.

All of that promises to make the extraordinary shareholder meeting in Basel on Wednesday unusually contentious. UBS is opening the doors to the venue of the meeting, St. Jacob's hall, 90 minutes early because so many people are expected to attend.

...
UBS shares have almost halved in value since last summer. They have fallen 36 percent since the rescue plan was announced in December.

To the bank's chagrin, activist shareholders are demanding a special audit to scrutinize how things could have gone so wrong. They also are asking the bank to shelve its planned 13 billion franc capital increase, which is to be voted on at the meeting Wednesday.

Domestic shareholders, particularly pension funds like SwissCanto, are up in arms over the dilution of their influence and the seemingly cloak-and-dagger way the investment has been managed. In fact, one potential new investor is still anonymous.

The proposed mandatory rights issue will make the Government of Singapore Investment Corp. the single largest shareholder at UBS - and give it de facto blocking power. Another stake, worth 2 billion francs, will go to an anonymous Middle Eastern investor, believed to be linked to Saudi Arabia.

"With around about 10 percent of the shares, Singapore can pick up the phone and place any demand on Zurich," said Dominique Biedermann, the soft-spoken director of Ethos, a shareholder advocacy group. His polite approach has gained Biedermann respect even among the corporations he tends to criticize. Ethos, which counts 79 pension funds among its members, represents about 1 percent of UBS share capital."

Here is a link to the whole article: http://www.iht.com/articles/2008/02/26/business/ubs.php

Michael

Full post as published by Texas Lawyer Blog on February 28, 2008 (boomark / email).