'No crisis,' say Swiss financiers

UBS, the country's biggest bank and once a byword for safe, reliable investments, now has the dubious distinction of being the world's biggest subprime loser after fresh writedowns this week drove its total damage to $37.4 billion.

But politicians and senior banking officials have been at pains to stress that UBS' woes are not symptomatic of a wider malaise affecting the whole financial system.

Finance Minister Hans-Rudolf Merz has repeatedly said in recent weeks that there is no need to panic despite the vast losses at UBS and similar -- if less extensive -- writedowns at rival Credit Suisse.

Credit Suisse warned last month it could suffer a first quarter loss, citing exposure to the US subprime crisis, and said some of its traders had engaged in "intentional misconduct" and had been suspended.

"Certainly there has been a weakening of the robustness of the two institutes but one must note that our banking system as a whole has remained stable," Merz said at a speech to the Swiss Funds Association on Thursday.

"With this background, one cannot speak of a banking crisis in Switzerland."

But the pressure on UBS continued within hours of his speech, as former bank boss Luqman Arnold called for the sale of the troubled investment banking unit and the head of its newly installed chairman.

Arnold -- who was himself ousted from the bank in 2001 after disagreements with board members -- slammed its "ineffective corporate governance and insular culture," which he blamed for the massive losses.

The latest losses prompted the departure of chairman Marcel Ospel, who will be replaced on April 23 by the bank's chief counsel, Peter Kurer.

The appointment of the 59-year-old Swiss lawyer raised eyebrows because of his lack of financial sector experience and Arnold said bluntly he was not the right man for the job.

"This is not an appropriate way to ensure a radical review and correction of mistakes that led to the largest trading losses in European banking history."

Analysts warned however that any divestment would be a long and complicated process, assuming that a buyer could be found for a bank that has had to own up to billions of dollars in losses due to the US subprime home loan crisis.

"Legal issues could take at least six months, but operational issues could take years to resolve -- it's really an integrated bank," said Andreas Venditti at Zuercher Kantonalbank.

The Swiss Federal Banking Commission (EBK), which is charged with ensuring the country's banks meet regulatory requirements, acknowledged it should have done more before UBS revealed its subprime losses.

The Commission said it had sought information from UBS on its subprime exposure as early as March 2007 but was told that its investment bank was "fully hedged, yes, even overhedged."

"This answer subsequently proved to be wrong, because UBS did not correctly capture its actual risk exposure and seriously overestimated its hedges," chief executive Daniel Zuberbuehler said at the Commission's annual news conference on Tuesday.

Nevertheless, EBK spokesman Tobias Lux told AFP on Friday that the banking system was fundamentally in good health.

"The situation at the Swiss banks is very solid. All the banks fulfill and have always fulfilled the regulatory requirements concerning the capital base during this crisis."

Asked specifically about UBS, Lux said that "due to the recapitalisation and the other recently published measures the bank's capital base is on a comfortable level again."

UBS management has so far insisted no divestments or spin-offs are on the cards but pressure is likely to grow, especially in the light of the favourable stock market reaction to Luqman Arnold's proposals.

UBS shares closed up 3.27 per cent at 33.46 Swiss francs on Friday on the Zurich stock exchange.

"The idea is that the value of the bank will increase because at present there is a discount because of the investment bank," said Madeleine Hoffmann, equity analyst at Julius Baer. (AFP)