UBS Chief Admits Ignoring Mortgage Loss Warnings

October 7, 2007 2:23 p.m. EST

Zurich, Switzerland (AHN) - The head of UBS admitted Saturday that the giant Swiss bank had ignored the warning signs of the imminent American sub-prime mortgage loan crisis and regrets that top executives are now paying for the costly mistake.

UBS president Marcel Ospel said the bank underestimated the woes facing the home loans credit market in the U.S. but remains confident the whole episode will make UBS a better and stronger institution.

In an interview with the Neue Zuercher Zeitung newspaper, Ospel said the bank invested heavily in subprime-related instruments, resulting in a much bigger exposure than their competitors.

"We poorly evaluated the impact of changing interest rates in the United States which triggered the problems in that country's mortgage sector," he said.

"The problems started with the last change in interest rates and were compounded by DRCM," Ospel added.

UBS's Dillon Read Capital Management hedge fund was incorporated into the bank's investment arm but was closed in May.

DRCM chalked up $325 million in losses in the U.S. mortgage market before closing shop.

UBS announced last Monday that it racked up $3.4 billion of losses in the third quarter, mainly as a result of its exposure to worthless sub-prime mortgages.

Two executives linked to the losses, Huw Jenkins, the head of UBS's investment banking business, and financial director Clive Standish were booted out of their posts.

"When such extraordinary events occur, that can result in personal consequences," Ospel said.

As early as a year ago, the UBS chief told the newspaper that UBS had identified there problem areas, namely, the trend of costs, the missing dynamics in the interest business, and balance growth.

He said appropriate changes were made for these. However, the bank failed to anticipate the mortgages losses.