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ZURICH, Feb 17 (Reuters) - UBS AG UBSN.VX does not expect 2008 to be a year like 2007, when the Swiss bank wrote down $18 billion in bad credits and posted the first loss since its creation, its chief executive was quoted as saying on Sunday.
“I view the environment as difficult due to great uncertainties related to the U.S. economy. Nervousness will remain high in the markets. But you cannot conclude from that that 2008 will be a year like 2007 for UBS,” UBS Chief Executive Marcel Rohner told newspaper NZZ am Sonntag.
UBS, the world’s largest manager of affluent people’s money, is Europe’s biggest casualty of the credit crunch by far. Investors fear the possibility of billions of dollars in new subprime writedowns.
Rohner said UBS’s investment banking business would concentrate in 2008 on its strengths in customer business, such as equities and mergers and acquisitions advisory business.
“Our goal is to give the businesses that do excellent work the space to develop further, while isolating the problem portfolios in the U.S. mortgage market, managing them separately and quickly reducing the risks,” he said.
UBS has published details of its exposure to problem areas in U.S. debt, totalling $88 billion at the end of 2007, including $27.5 billion in sub-prime debt.
But Rohner said the figure could not be used to predict losses, as it comprised highly diverse positions and risks.
“The quality of our investment in leveraged buyouts, for example, is much better than in complex securities based on mortgages with poor debtor quality,” he said.
Rohner said it was not currently possible to sell intact structured products. But where a collateralised debt obligation structure had become insolvent, UBS had been able to reduce its risks by selling the underlying securities at prices in line with their current valuation by the bank.
UBS’s private banking business has not been affected by the blow to the bank’s reputation, Rohner said. Private banking recorded net inflows of more than 30 billion Swiss francs ($27.40 billion) in the fourth quarter of 2007, and net inflows continued in January.
“We are taking on more customer advisers,” he said.
Rohner defended the continuing payment of bonuses amid the losses, as the losses arose from real estate loans handled by a small part of the bank.
Other areas of the bank had worked well and it was important to continue to motivate staff producing these results by treating them fairly.
“In such an extreme situation it’s important to protect the value of the company which is primarily determined by staff and their relationships with customers,” he said.
Rohner said it was important to review how bonuses for traders could be restructured, but said that blocking traders’ bonuses for one or two years would not help in extreme cases, which could cause major damage.
“Such risks must be strictly controlled through limits and incentives in the financing that are appropriate to the risks,” he said. (Reporting by Jonathan Lynn; Editing by Paul Bolding)