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UBS AGM: loud boos, hissing and yelling; shareholders criticized board for bank’s blunders: Shell CFO Peter Voser is a member of the board

THE WALL STREET JOURNAL: UBS Holders Score Win

Concessions Short
Of Revamp Sought;
Kurer Gets Booed
By KATHARINA BART and GORAN MIJUK
April 24, 2008; Page C2

UBS AG bowed to investor pressure by outlining plans to slim down its investment bank and strengthen its board, but it stopped short of the deep revamp demanded by some activist shareholders.

“Fundamental change is required in the way we look at risk and the implications this has on the scope of activities in which we want this bank to be engaged,” said Peter Kurer, who was elected chairman at the Swiss bank’s annual general meeting in Basel despite opposition from some shareholders.

Mr. Kurer, who succeeded Marcel Ospel, was voted in by holders of 87% of shares — with nearly 7% opposing his election — despite broad criticism the 58-year-old lawyer and former general counsel of UBS lacks expertise and was too close to previous management.

His election triggered loud boos, hissing and yelling from many small shareholders among the more than 4,000 gathered in Basel. At times the shareholders criticized the board for the bank’s blunders and lack of risk controls.

Mr. Kurer vowed to simplify the bank’s structure and to rely more on its healthy private bank. Under his reign, UBS also will cut back its investment-bank business and rejigger the way its board of directors operates in a bid to sharpen its focus on risk management.

He added he was satisfied by the level of approval he received from shareholders. “Anything over 75% is good,” he said. He also welcomed that holders of 97% of shares backed the bank’s capital increase of 15 billion Swiss francs, or about $15 billion, the second large cash infusion in less than two months, necessary to keep the bank intact.

Despite the concessions made, some shareholders said more needs to be done at the bank, which has been among the biggest victims in the subprime crisis. “The plans to reduce the investment bank are positive,” said Roby Tschopp, president of Swiss shareholder group Actares. “However, we can’t support the board as it is.”

Swiss activist Ethos said it will ask for an extraordinary general meeting to appoint new board members with more banking expertise, a deficiency UBS has acknowledged and that it wants to fix.

Olivant Advisers Ltd., the most fervent critic of UBS, was also skeptical. “We remain concerned that UBS underestimates the complexity of the challenges it faces,” Chairman Luqman Arnold said, adding that the board’s experience to handle the crisis was limited. Mr. Arnold left UBS as president in 2001.

Mr. Kurer shrugged off calls for his appointment to be temporary, saying that UBS aims to tap fresh talent when it replaces a number of board members who are due to step down in coming months, declining to say who would resign.

Besides board members Stephan Haeringer and David Sidwell, a former executive at Morgan Stanley who was also elected Wednesday, the UBS board consists of nonbankers.

Mr. Kurer said the UBS board will begin working on a new strategy later this year. He said the bank’s senior executive managers along with UBS board members Ernesto Bertarelli, former owner of Swiss biotech firm Serono SA, Sergio Marchionne, current chief executive at Fiat SpA, and Peter Voser, chief financial officer at Royal Dutch Shell PLC, will help with the task.

On the operational level, UBS CEO Marcel Rohner said the bank has already started to reduce its risk positions but still has much to do in getting rid of toxic assets. UBS has so far written down more than $37 billion but still holds sizable risky assets on its books. “Today our problem positions are only about a third of what they were at the end of September 2007,” Mr. Rohner said.

The bank is expected to post a net loss of about 12 billion francs for the first quarter after a fourth-quarter net loss of 12.45 billion francs.

Mr. Rohner said UBS will reduce its fixed-income business and cut costs at its investment bank. But he said the investment bank, which generated most of the UBS losses, won’t be spun off, as some activists had requested.

This raised some shareholder concerns that the plan to trim the investment bank may not be enough. “Who can guarantee that this is a one-time fault, won’t happen again in the future,” said Wolfgang Aleff of Germany’s largest association for private investors, DSW.

Olivant’s Mr. Arnold also said UBS’s “indiscriminate approach…for downsizing the investment bank may damage its market-leading franchises.”

Mr. Rohner reiterated comments that the investment bank won’t be subsidized any more by the UBS wealth-management unit and that the “capital required by the investment bank for future growth must be generated under its own steam.”

Though an outright sale of the investment bank is unlikely, job cuts are expected. UBS has reduced the investment bank’s headcount by 1,500 and about 2,000 more job cuts are expected. The unit employs about 22,000. More details are expected in May, when UBS reports quarterly earnings.

At the same time, the bank said it still aims to achieve “the highest client-driven growth in the investment bank.” It said most parts of the investment bank operate successfully including corporate finance and equities.

Write to Katharina Bart at [email protected] and Goran Mijuk at [email protected]

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