(Adds shareholder votes, comment from activist investor Knight Vinke)
ZURICH May 7 (Reuters) - Shareholders of UBS on Wednesday backed the board and management despite opposition due to the bank's involvement in various scandals, including a global probe into the largely unregulated $5.3 trillion-a-day foreign exchange market.
Influential proxy advisor Glass Lewis had argued shareholders should be concerned with the extent of the burgeoning forex probe, and be mindful of potentially material fines UBS may have to pay for helping wealthy clients evade taxes.
Just over 12 percent of shareholders agreed with Glass Lewis, while more than 87 percent backed UBS' board and top management.
Previously an annual formality, the vote to ratify board and management has increasingly been used as a means of protest by shareholders.
A yes-vote means the company itself and the shareholders who vote for it would no longer have the option of pursuing legal action against them, unless new information came to light.
CRITICISM FROM ACTIVIST SHAREHOLDER
The Zurich-based lender faced shareholders one day after it announced plans to pay them a special dividend for swapping its shares into a new holding, to ensure the bank could be broken up more easily in a crisis.
Slashing risky assets has been a key part of UBS' response to the Swiss financial regulator's demand for more capital to underlay those assets.
The bank lowered its risk-weighted assets to 226.8 billion Swiss francs ($259.05 billion), compared to 302.27 billion francs at the end of 2008 the year UBS took a state rescue package.
UBS, which paid $1.5 billion in 2012 to U.S. and European authorities over alleged efforts to manipulate Libor and other benchmark interest rates, is 18 months into a three-year revamp.
The plan is to scale back its investment bank and derive the bulk of profits from its flagship private banking operations in order to pay richer dividends.
Knight Vinke, an activist investor which has been critical of UBS' investment bank because it says it threatens the lucrative private banking business, welcomed some of the measures.
However, Knight Vinke told Reuters it remained concerned the securities unit is beset with risky assets. The bank has said it aims for the securities trading part of its investment bank will soak up roughly 85 percent of the unit's risk-weighted assets, with the remainder allotted to an advisory arm.
"What we still want to see is the elimination of the trading assets which still present substantial financial and reputational risk - and will continue to attract the attention of regulators," Knight Vinke Vice Chairman David Trenchard told Reuters.
UBS, which didn't comment, has already come under stronger Swiss regulatory oversight: last year, the bank was required to hold 22.5 billion francs in extra reserves against potential litigation and fines.
SCATHING PAY VOTE
UBS' pay practices also faced stiff opposition, though shareholder votes are not yet binding. More than 11 percent of UBS shareholders voted against the bank's bonus plan, while nearly 86 percent backed it.
At the investor meeting, UBS Chairman Axel Weber and Chief Executive Sergio Ermotti were grilled, largely by Swiss shareholders, over pay.
"We also will not rest until our demands on excessive pay are heard," said retail shareholder Hans-Jacob Heitz, in a nod to an advertising campaign it launched in 2010, in an attempt to put some of the scandals behind.
Besides the foreign exchange scandal, UBS is mired in several others, including claims it misrepresented mortgage-backed bonds during the U.S. housing bubble and back taxes due to Brazil, dating back to when the Swiss lender owned an investment bank in the country.
CEO Ermotti asked shareholders for more time to clean up.
"We are in a good position and doing the right thing, but we have not yet seen the end of all issues from the past - they will continue to cost the industry and us time and effort," Ermotti told shareholders.
On Tuesday, UBS told shareholders it still expects "elevated" spending to resolve its past. The global forex probe, still at an early stage, is among UBS' biggest problems because the Swiss bank is the world's fourth-biggest currency trader, according to a Euromoney poll.
"We do not believe there is sufficient evidence yet that the company's risk controls are robust enough to warrant ratifying the board and management acts," Glass Lewis wrote to shareholders ahead of the meeting, in a recommendation seen by Reuters. ($1 = 0.8755 Swiss Francs) (Reporting By Katharina Bart. Albert Schmieder contributed reporting.; Editing by Joshua Franklin and Louise Heavens)