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UBS accused of ‘misrepresentations’ and dumping ‘toxic’ loans to secure ‘extraordinary bonus payments’: Shell CFO Peter Voser is a UBS director

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Daily Telegraph: UBS ‘dumped its loans on us’ – client

By Philip Aldrick
Last Updated: 7:45am BST 23/04/2008

UBS bankers dumped half a billion dollars of “toxic” sub-prime mortgage securities on a client to boost revenues and secure their “extraordinary bonus payments” with no regard for the consequences, a letter of claim seen by The Daily Telegraph alleges.

German regional bank HSH Nordbank is suing the troubled Swiss giant, claiming that it lost at least $275m (£138m) in a scheme devised by UBS bankers “to enhance [their own] results”.

HSH has alleged that UBS offloaded the “toxic” securities to clear its books of the bad assets, but the letter goes further and blames its losses on the bank’s culture.

In the letter of claim, sent before proceedings were filed, HSH says: “We suspect that the substitution was ultimately linked to the problems at [UBS hedge fund] Dillon Read and specifically that Dillon Read management did so in time to enhance results and ensure the extraordinary bonus payments of 2007.

“Unfortunately, this is just one illustration of the misrepresentations, bad faith and breaches of contract.”

The allegations echo UBS’s own critical report into the failures on risk controls and staff incentivisation that led to $37.1bn of credit market writedowns, and come as investors gather for what is expected to be a stormy annual meeting today.

UBS’s own submission to banking regulators this week stated: “Incentivisation arrangements did not differentiate between returns generated by skill. Bonuses were measured against gross revenue with no formal account taken of the sustainability of earnings.”

Central to HSH’s claim is the allegation that UBS “abused” the substitution clauses in the fund HSH set up in 2002 with a $500m investment. HSH alleges that UBS’s substituted into the investment $552m of inferior sub-prime assets it owned in exchange for HSH’s safer “seasoned” assets.

UBS said: ” We executed all of our contractual obligations and the transaction is not in default. We greatly regret that the client decided to attempt to apply media pressure during the period of our annual meeting. We are comfortable with our position regards to the coming proceedings.”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/23/cnubs123.xml

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