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UBS Raps Banker for Woes
Report Says Jenkins Mishandled Response As Hedge Fund Closed

By KATHARINA BART
April 21, 2008 2:56 p.m.

ZURICH -- UBS AG published details of the internal workings responsible for $37 billion in write-downs on mortgage securities, laying much of the blame at the feet of its former investment-banking head, Huw Jenkins.
In an excerpt of a report to Switzerland's banking regulator that was made public through shareholder pressure, UBS casts Mr. Jenkins as ineffectual and distracted in managing the crisis, which began to unfold in May after UBS shut in-house hedge fund Dillon Read Capital Management amid trading losses.

In the part of the report published Monday, the bank blames trading positions held in three parts of its investment bank for the major losses: the hedge fund Dillon Read; the collateralized debt obligation, or CDO, desk; and the asset-backed trading book.
UBS admitted failing to properly evaluate the damage inflicted by Dillon Read when it was closed in 2007, and to inadequate risk management.

"The closure of DRCM should have been a basis for a more comprehensive review and assessment of all subprime positions in the investment bank, and for a review of UBS's risk assessment processes in connection with the same," the report said.
The result has been an unprecedented full-year net loss, two major injections of capital and numerous departures of top UBS executives.

In the report, UBS blames Mr. Jenkins for focusing on revenue as opposed to profitability. Growth in revenue ensures favorable rankings in industry "league tables," one measure of how investment banks perform relative to one another.
The bank also faults Mr. Jenkins with keeping bank management and Chairman Marcel Ospel in the dark about the losses until August, several months after Dillon Read had been shut down for its losses.

In addition, UBS said that as the crisis unfolded, Mr. Jenkins's investment bank paid too much attention to other areas, such as how to bolster its lagging leveraged-finance arm, and too little to the subprime holdings.

Mr. Jenkins, who was ousted over ever-increasing losses late last year but who remains on the UBS payroll as a consultant until October, declined to comment.
The report was prepared by UBS's counsel Peter Kurer -- who is set to succeed Mr. Ospel as chairman Wednesday -- in conjunction with law firms Sullivan & Cromwell LLP and Homburger AG, as well as auditor PricewaterhouseCoopers.
Though UBS and Mr. Kurer have come under pressure from shareholders led by former UBS Chief Executive Luqman Arnold's investment firm Olivant Advisers Ltd., Mr. Kurer is expected to win approval from shareholders.

UBS made the summary of its report to the Swiss banking regulator public because of pressure from Ethos Fund, an activist shareholder. Ethos wasn't available for comment.

The regulator confirmed it had received a roughly 400-page report from UBS detailing the failings, but spokesman Alain Bichsel declined to comment on the regulator's own findings or potential action.