FBC Approves New UBS Risk Control Structure

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ZURICH--UBS is restructuring its risk management operations in line with recommendations from Switzerland's Federal Banking Com-mission (FBC). The FBC's examination of UBS's internal controls and procedures was sparked by equity derivatives losses sustained last year by the former Union Bank of Switzerland's global equities division. UBS was formed last month from the merger of Union Bank of Switzerland and Swiss Bank Corporation.

A UBS spokesperson says the FBC investigation has approved UBS's senior risk management structure. In particular, the commission has "confirmed the ability" of Mathis Cabiallavetta, chairman of the new UBS, Werner Bonadurer, joint chief operating officer of UBS's Warburg Dillon Read investment banking arm, and Walter Sturzinger, head of group internal audit at UBS, says the spokesperson. Ramy Goldstein, Union Bank of Switzerland's head of equity derivatives at the time of the losses, was dismissed last year (RMO, February 9).

The spokesperson adds that Union Bank of Switzerland's internal business units had detected deficiencies in the bank's risk management systems, but these deficiencies were not addressed. The new UBS is thus adopting the technological infrastructure in place at SBC to promote a more controlled risk management environment, says the spokesperson.

UBS's executive board of directors is also organized along SBC's lines. Felix Fischer, former chief financial officer at Union Bank of Switzerland, is the chief risk officer of the new bank. Fischer could not be reached for comment by RMO's press time.

Board appointments

Peter Wuffli, previously at SBC, has been named as chief financial officer of UBS. Pierre De Weck, is the bank's chief credit officer and head of private equity. He was formerly a member of Union Bank of Switzerland's executive board.

UBS has also set up a new audit committee, reporting to the board of directors. This committee was established in response to the 1997 derivatives losses. The bulk of these losses were due to "misconduct by individuals, wrong assessments of the market and deficiencies in the control area of Union Bank of Switzerland's equity derivatives operations", says the UBS spokesperson.

Some 120 million Swiss francs of losses stemmed from errors in a pricing model for structured equity derivatives, says the spokesperson, with another SFr275 million attributable to losses in proprietary trading of Japanese convertible bonds. The remaining SFr230 million of losses was the result of changes in UK tax legislation and the South East Asian economic crisis, adds the spokesperson.

-- Adriana Saraceni