UBS explains huge subprime losses

ZURICH, April 21, 2008 (AFP) – Switzerland’s biggest bank UBS said Monday that weak risk control and a pay structure that invited risky deals were among key factors leading to its massive subprime-related losses. A 50-page report to shareholders, a summary of a document the bank submitted earlier to the Federal Banking Commission, set out the causes leading to writedowns of over 37 billion dollars (23.4 billion euros) that made UBS the world’s worst-hit by the subprime crisis.

UBS cited the failure by its market risk control team to sufficiently “challenge” the desk dealing with collateral-debt obligations (CDOs) even when its subprime holdings were growing significantly.

In addition, it said that its compensation structure for employees provided “insufficient incentives to protect the UBS franchise long-term.”

The report said UBS’s review saw no “fundamental flaw in relation to its objectives.”

But it added that “in hindsight UBS believes that implementation of these particular growth initiatives as well as the level of challenge by Group and Investment Banking Senior Management on these initiatives was a contributing factor to the build-up of UBS’s subprime positions which subsequently incurr