UBS AG

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UBS AG

Bahnhofstrasse 45
CH-8098 Zurich
Switzerland
Telephone: (01) 234 11 11
Fax: (01) 234 34 15
Web site: http://www.ubs.com

Public Company
Incorporated: 1912 as Union Bank of Switzerland
Employees: 69,684
Total Assets: SFr 1.24 trillion ($838.2 billion) (2002)
Stock Exchanges: Swiss New York Tokyo
Ticker Symbol: UBS
NAIC: 522110 Commercial Banking; 522210 Credit Card Issuing; 522291 Consumer Lending; 522292 Real Estate Credit; 522293 International Trade Financing; 523110 Investment Banking and Securities Dealing; 523120 Securities Brokerage; 523920 Portfolio Management; 523930 Investment Advice; 523991 Trust, Fiduciary, and Custody Services; 524113 Direct Life Insurance Carriers; 525910 Open-End Investment Funds; 551111 Offices of Bank Holding Companies

UBS AG was formed from the 1998 megamerger of Swiss Bank Corporation and Union Bank of Switzerland. The resulting giant ranked as the second largest bank in Europe (trailing Deutsche Bank AG) and one of the ten largest financial institutions in the world, with assets approaching $900 billion in the early 2000s. The corporation has four main units. UBS Wealth Management & Business Banking includes the leading retail banking operation in Switzerland, with 317 branches and 1,250 ATMs serving about four million individual and corporate clients, along with the world’s leading private banking business, with the latter offering wealthy clients a wide range of individually designed products and services. UBS Global Asset Management ranks as one of the world’s leading institutional asset managers and providers of mutual fund products. UBS Warburg operates globally as the group’s investment banking and securities business. UBS Paine Webber is one of the leading wealth management firms in the United States, with a network of more than 8,300 financial advisors managing $436 billion of invested assets for 1.9 million, mainly affluent, individuals. Overall, UBS has 1,500 offices in 50 countries, and it manages $1.49 trillion of invested assets for its clients around the world.

19th-century Founding of Swiss Bank

Of the two 1998 merger partners, Swiss Bank Corporation was the first to be established, though by only a few years. In 1854 a group of six private bankers in Basel started the “Bankverein” in response to the growing credit needs of Switzerland’s railroad and manufacturing industries. The bank’s founders initially resisted joint stock ownership because they wanted to keep the bank small and manageable, but they gradually yielded this position in the early 1870s as a number of new competitors entered the market and as colleagues in Germany and Austria increased pressure to have a large bank headquartered in Basel. Thus in 1872 the Basler Bankverein was established as a joint stock company.

In its first year of operation the Basler Bankverein was nominated as the official Swiss bank of issue for the French national loan, for financing the growing textile and metal industries in France. Beginning in 1873, however, the bank encountered several major setbacks. The Vienna stock exchange collapse, falling prices, and many bad loans forced the bank to forego issuing dividends to shareholders in favor of establishing a loss reserve. With this reserve, it was able to withstand an economic slowdown and problems in the domestic railway industry that occurred later that decade.

Over the next 20 years, the bank experienced a series of ups and downs that paralleled fluctuations in the Swiss industry and trade. Nevertheless, the bank played a significant, although restrained, role in establishing new industrial companies within Switzerland as well as new banks in Italy and Belgium.

After merging with the Zürcher Bankverein in 1895, the bank changed its name to the Basier and Züuuml;rcher Bankverein. Upon acquiring the Schweizerische Unionbank in St. Gall and the Basler Depositen-Bank in 1897, the bank began operating under its present name, Schweizerischer Bankverein, with offices in St. Gall and Zurich in addition to the headquarters in Basel. (The English name of the bank was initially Swiss Bankverein; in 1917 the name was changed to Swiss Bank Corporation.) Although a new internal structure was set up to offer autonomy to each office through three local board committees managed by one central group, this system proved too difficult to manage on a uniform basis and was later revised so that the central committee was involved more directly in the daily affairs of each office.

As the bank attempted to resolve these operational issues, it continued to grow both through its participation in Switzerland’s industrial growth and foreign trade, and through the acquisition of smaller, weaker financial institutions. It also supported the government’s efforts to buy back the country’s major railroads from foreign investors during the early 1900s.

This activity came to an abrupt halt in 1914 with the advent of World War I as the bank supported neutral Switzerland’s wartime economy and aided the country’s war effort. Unlike other banks, which incurred major losses abroad during this period, Swiss Bank Corporation survived the war’s financial pressures in spite of restricted access to its assets held outside the country. One noticeable effect of the war on the bank, however, was the collapse of several industrial firms in which the bank had held a major interest.

Beginning in 1924, the bank took an active role in rebuilding the international economic system by extending loans to other countries. It also served as a depository of foreign funds for investors threatened by inflation and political instability in their own countries. In 1929 the bank assisted in locating the newly formed Bank for International Settlements in Basel. This body was formed to mediate the payment of war-related reparations.

As the country struggled to overcome the Depression in the aftermath of the stock market crash in New York and the devaluation of the Swiss franc in 1936, the bank was forced to draw upon its already strained resources to help other institutions stay afloat. When it became apparent that the world was about to fall victim to another major war, the bank received a large influx of foreign funds for safekeeping and also rallied its own resources in preparation for the conflict by opening an agency in New York in 1939 to store assets in case of an invasion. As traditional business fell off once the war began, the Swiss government became the bank’s largest customer as funds were directed toward the country’s defense. This war had a predictable effect on dividend payments and earnings, but Swiss Bank endured as best it could.

Postwar Growth at Home and Abroad

Dr. Rudolf Speich became chairman in 1944, soon to face the problems and opportunities of the postwar period. At the end of World War II, Swiss Bank’s assets were nearly SFr 2 billion. Once postwar finances had been sorted out, the bank turned its attention to financing private rather than state industry and to rebuilding the shattered economies of Europe. By 1947 Swiss Bank was lending money abroad again, and between 1945 and 1948 it contributed some SFr 2.5 billion to Switzerland’s efforts to help its neighbors rebuild. Meantime, the bank in 1945 completed the acquisition of the Basler Handelsbank (Commercial Bank of Basel), a major though financially troubled bank that had been founded in 1862.

By 1958 the bank’s assets had doubled, to SFr 4 billion, and under Samuel Schweizer, who became chairman in 1961, they had doubled again by 1964. Fueling this growth was a growing number of branches, both domestic and international. In addition to the London banking office, which had opened in 1898, and the New York operation that began in 1939, the bank opened offices all over the world. In the United States, offices were opened in San Francisco in 1965 and Los Angeles in 1968. In 1965 it became one of the first European financial institutions in Tokyo.

During the 1970s, because of heavy competition within Switzerland, the bank focused on the business of multinational corporations based in the United States and Canada, expanding its offices to several other North American cities. In 1972, it formed the Swiss Bank and Trust Corporation Ltd. on Grand Cayman Island, followed by financial services subsidiaries in Hong Kong in 1973, in London in 1974, and in Luxembourg a year later.

A notable exception to this global focus was Swiss Bank’s participation in a major restructuring of the Swiss watchmaking industry, which was suffering from competition from technologically superior Japanese companies. Swiss Bank and some of its competitors extended new credit to the nation’s watchmakers, enabling them to use quartz technology in watches rather than obsolete mechanical designs. Also at home, Swiss Bank in 1978 acquired a majority interest in Geneva-based Ferrier Lullin & Cie, SA, cementing its position in the private banking sector.

Company Perspectives:

Our vision is to be the pre-eminent global integrated investment services firm and the leading bank in Switzerland. We are the world’s leading provider of private banking services and one of the largest asset managers globally. In the investment banking and securities businesses, we are among the select bracket of major global houses. In Switzerland, we are the clear market leader in corporate and retail banking. As an integrated group, not merely a holding company, we create added value for our clients by drawing on the combined resources and expertise of all our businesses.

That same year, the bank appointed a new chairman, Hans Strasser, to lead it into a new decade. Strasser was the first high-ranking Swiss banking official to come from the working class; he had been an employee of the bank for more than 30 years. Strasser was instrumental in shifting some of the overall decision-making responsibility from the bank’s central management to its head branches and their respective subsidiaries. At the same time, management worked to establish a better balance between domestic and international banking activity, temporarily restraining the development of new business opportunities by the foreign offices, and, in particular, decreasing the number of less profitable interbank loans until business with private and commercial customers increased at home.

Internationally Active in the 1980s

During the 1980s, the bank also played a significant part in protecting Swiss interests in its existing international business affairs. In 1982 the bank formed SBC Portfolio Management International, Inc. in New York. In addition, as one of the world’s largest private gold dealers, it joined with the country’s two other leading banks, the Union Bank of Switzerland and the Credit Suisse, to form Premex A.G., a brokerage house designed to strengthen Swiss involvement in the international precious metals market, and in particular to reinforce gold bullion trading activity in Zurich, which had recently begun to falter.

Three years later, the three banks were allies once again in refusing to participate in Swiss franc note issues lead-managed by the Swiss subsidiaries of two Japanese banks, the Long-Term Credit Bank of Japan and Industrial Bank of Japan. Basing their protest on claims of unequal treatment of foreign banks by the Japanese government, the Swiss banks argued that since they were not permitted to underwrite securities or join the bond underwriting syndicate in Japan, Japanese banks should face similar restrictions in Switzerland.

Toward the end of 1985, in another minor incident, but one with political ramifications, the Supreme Court of Switzerland ordered the bank to release information to Scotland Yard about an account that had allegedly been used to deposit a $2.9 million ransom paid in an Irish Republican Army blackmail scheme two years earlier. The bank claimed that providing this information would endanger the customers involved, but the court held that it was in the country’s best interests for the bank to cooperate with the British government, although it required that the information supplied by the bank be used only in prosecuting the IRA.

In 1986, the growing problem of international debt facing the world’s financial institutions reached a critical juncture. In an attempt to keep Mexico from defaulting on its foreign loans, an international group of bank creditors attempted to negotiate a bridge loan to Mexico that would allow the country to fulfill its interest obligations on existing debt until a longer-term financing package was arranged. Alone in its resistance to this plan, Swiss Bank proposed instead that Mexico be permitted to miss upcoming interest payments, which would then be added on to the amount of the present loan. Under pressure from the International Monetary Fund and the other banks involved, Swiss Bank eventually agreed to participate in the original lending plan. Two years later, a more satisfactory agreement enabled the banks to exchange their existing Mexican loans for $10 billion in new higher-yield 20-year bonds issued by the Mexican government.

At the end of 1986 the bank’s investment banking operation added a branch in The Netherlands to its existing network of offices in London, Tokyo, New York, Frankfurt, Melbourne, and Zurich, providing more direct Swiss access to Dutch equities and bonds in the guilder market. This expansion was followed in 1987 by the acquisition of Savory Milln, a London-based securities broker, and Banque Stern, a French investment bank, as well as a controlling interest in the Paris brokerage house of Ducatel-Duval. These takeovers were in Swiss Bank Corporation’s tradition of international expansion, necessary in a small country with a limited—and crowded—domestic banking market.

Key Dates:

1854:: Six private bankers in Basel form the “Bankverein.”
1862:: Bank of Winterthur is founded.
1863:: Toggenburger Bank opens for business.
1872:: The “Bankverein” becomes a joint stock company under the name Basler Bankverein.
1895:: Basler Bankverein merges with the Zürcher Bankverein, forming the Basler and Zürcher Bankverein (BZB).
1897:: Following two more mergers, BZB changes its name to Schweizerischer Bankverein (initially translated into English as Swiss Bankverein).
1912:: Bank of Winterthur and Toggenburger Bank merge to form Schweizerische Bankgesellschaft (with the initial English name being Swiss Banking Association).
1917:: Swiss Bankverein changes its English name to Swiss Bank Corporation (SBC).
1921:: Swiss Banking Association changes its English name to Union Bank of Switzerland (UBS).
1945:: SBC acquires Basler Handelsbank; UBS acquires Eidgenössische Bank; the headquarters of UBS is moved to Bahnhofstrasse 45 in Zurich.
1967:: UBS acquires Interhandel, a Swiss financial company.
1986:: Phillips & Drew, a London brokerage and asset management house, is acquired by UBS; UBS also acquires the West German bank Deutsche Länderbank, which is renamed Schweizerische Bankgesellschaft (Deutschland) AG.
1991:: Martin Ebner, through an investment trust called BK Vision AG, takes an 18 percent stake in UBS and questions management decisions for the next several years.
1992:: Chicago-based derivatives specialist O’Connor & Associates is acquired by SBC.
1995:: SBC acquires Brinson Partners Inc. of Chicago, an institutional asset management firm, and S.G. Warburg Group PLC, a leading European investment bank.
1997:: SBC acquires U.S. investment bank Dillon Read & Co.
1998:: Swiss Bank and Union Bank merge to form UBS AG.
2000:: The U.S. brokerage firm Paine Webber Group Inc. is acquired.

Worldwide competition was inevitable and in 1988 the Swiss banking community as a whole attempted to make up ground lost to more aggressive American, Japanese, and British financial rivals. No longer able to remain cautious and grow solely by offering foreign investors the stability of the Swiss economic system and the tax advantages of a Swiss account as it had in the first half of the century, Swiss Bank attempted to further strengthen its international portfolio and solidify its U.S. presence with the purchase of a multiple-story office tower in New York for its North American headquarters.

In 1988 in the midst of these attempts to redefine its business strategy, the bank, along with the Union Bank of Switzerland and Credit Suisse, found itself embroiled in a $1 billion money-laundering scheme operated by a Lebanese-Turkish drug syndicate. Although the bank did hold accounts for some of the people involved, it denied that it had acted in violation of Swiss banking laws. In addition, in early 1989, Swiss Bank was excluded from participating in a C$500 million issue of Eurobonds because the Canadian government suspected it of conducting business with South African authorities.

The bank went on the offensive beginning in February 1989 when, as one of the underwriters of Swiss franc bonds issued by RJR Nabisco, Inc., it attempted to force the company to redeem these notes because of an impending buyout by Kohlberg Kravis Roberts & Co. According to the provisions of the original bond issue, the bondholders were entitled to the return of their investment in the event of a corporate reorganization. The lawsuits filed by the bank on behalf of its bondholders were settled over the next two months before the eventual sale of the company.

Building a Global Trading and Investment Bank: 1990-97

Swiss Bank began the 1990s as the weakest of the “Big Three” Swiss banks. Its international operations were particularly weak and had been hit hard by a series of bad loans that had been made to global real estate developers and takeover firms. But under the leadership of Marcel Ospel, who was head of international operations at the beginning of the decade, and Georges Blum, who was named president of the bank in 1993, Swiss Bank adopted a new international strategy. The conservative, lending-oriented approach was to give way to a riskier but potentially more rewarding goal: rapidly develop a strong global trading and investment banking operation. At the same time, the bank’s traditional domestic retail, corporate, and private banking activities were to be maintained.

The first major departure from the traditional Swiss conservatism that had marked most of the bank’s history came in 1992 with the acquisition of O’Connor & Associates, a Chicago-based options trader specializing in the burgeoning derivatives sector. Founded in 1977, the highly successful O’Connor had had a strategic partnership with Swiss Bank since 1988. To shake up Swiss Bank’s sleepy international operations, executives from the American firm were placed in top management posts at Swiss Bank.

Next, Swiss Bank acquired another Chicago firm, Brinson Partners Inc., to bolster its international asset management operations. Purchased for $750 million in stock in early 1995, Brinson had $36 billion under management and was one of the largest managers of U.S. institutional funds in global securities markets. Later in 1995, Swiss Bank’s international ambitions took a major step forward through the purchase of S.G. Warburg Group PLC, a leading European investment banking firm based in London, for £860 million ($1.34 billion). Not included in the deal was Mercury Asset Management PLC, a funds management outfit 75 percent owned by Warburg. The merging of Warburg and Swiss Bank’s existing investment banking operations created SBC Warburg, one of the top players in global investment banking. In a 1996 reorganization, SBC Warburg became one of four Swiss Bank divisions, the others being the Domestic Division (renamed SBC Switzerland in 1997), SBC Private Banking, and SBC Brinson (the asset management unit).

In mid-1996 Ospel was promoted to president of Swiss Bank, with Blum taking over the chairmanship. While building up its international operations, Swiss Bank was struggling to turn around its domestic business, which was beset by loan losses in real estate and other sectors as the Swiss economy had been mired in recession the entire decade. To address the problems in its domestic loan portfolio, the bank took a special provision of SFr 2.8 billion, which led to a loss for the year of SFr 1.96 billion. Swiss Bank also had to deal with inefficiencies in its domestic retail banking unit, which was the smallest of the Big Three Swiss banks but had the largest network of branches. The bank announced, therefore, that it would close about 80 of its 325 branches and cut its Swiss-based workforce by about 13 percent, representing about 1,700 employees.

In addition to celebrating its 125th anniversary in 1997, Swiss Bank took the important step of buying a U.S. investment bank, Dillon Read & Co. The U.S. house was bought for $600 million in stock and bolstered SBC Warburg’s U.S. mergers-advisory business. With this latest acquisition, SBC Warburg was renamed SBC Warburg Dillon Read. In July 1997 Swiss Bank reached an agreement with Long-Term Credit Bank of Japan, Ltd. to enter into a series of joint ventures in Japan, including an investment bank, an asset management firm, and the first-ever private banking enterprise in Japan. The two companies also said that they would each buy 3 percent stakes in the other. The year 1997 concluded with the historic announcement in December of the merger of Swiss Bank Corporation and Union Bank of Switzerland.

Early History of Union Bank of Switzerland

Union Bank of Switzerland (UBS) was formed in 1912 when Bank of Winterthur and Toggenburger Bank merged. Bank of Winterthur was founded in 1862 and established itself as a business lender with strong international connections. (In 1872 the Bank of Winterthur participated in the founding of the Basler Bankverein, the forerunner of Swiss Bank Corporation.) Initially based in Lichtensteig, a small town in eastern Switzerland, Toggenburger Bank was founded in 1863 and became a general-service regional bank. In addition to its savings and mortgage banking businesses, it also engaged in securities trading. In 1882 Toggenburger Bank opened a branch in St. Gall, after which the bank gradually shifted its operations to that city, which is also in eastern Switzerland.

When the two banks amalgamated to form Schweizerische Bankgesellschaft, the resulting institution possessed nine branch offices and SFr 202 million in assets. But although the two banks seemed like complementary partners—one with an international reputation, the other with a strong domestic base—UBS confined its operations at first to its regional strongholds in the east and northeast of the country. (The English form of the bank’s name was initially Swiss Banking Association, but it was changed to Union Bank of Switzerland in 1921 in imitation of the French form of the name: Union de Banques Suisses.)

During its initial decades of existence, UBS operated from dual headquarters in the cities of Winterthur and St. Gall. Operations in Zurich gradually increased, however, to the point where the bank constructed an important new building at Bahnhofstrasse 45, where the headquarters would eventually be relocated (Bahnhofstrasse being the Wall Street of Zurich). In the years following World War I, the bank expanded its operations into the cantons of Aaragau, Bern, and Ticino through the opening of new branches and the acquisition of local banks. It continued to prosper through the 1920s, and by the end of the decade it possessed assets worth SFr 992 million.

UBS struggled along with the rest of the world during the Great Depression, suffering a decline in its assets. It did not really recover, in fact, until after World War II. Despite Switzerland’s famed neutrality, the war hurt the bank by virtually shutting down its international businesses. While banks in major countries like the United States and Germany began to recover from the Depression because of wartime economic expansion and their governments’ need for emergency financing, UBS’s performance continued to lag.

Concentrating on Domestic Growth in Postwar Era

Once the war ended, however, so did the bank’s slump. Only a few months after Germany’s defeat in 1945, it acquired Eidgenüssische Bank, a prominent Zurich financial institution that had become insolvent during the war. This acquisition pushed UBS’s assets to SFr 1 billion and established it as one of Switzerland’s largest banks. That same year, UBS shifted its headquarters from Winterthur and St. Gall to Zurich, specifically Bahnhofstrasse 45—a site that still houses the headquarters of UBS AG. In 1946 UBS established a presence in the United States for the first time when it opened a representative office in New York in 1946. But the bank’s strategy during the postwar years concentrated on developing its domestic business. It continued to open branches and acquire smaller institutions within Swiss borders throughout the 1950s. By 1962, UBS had 81 branch offices and its assets had reached SFr 7 billion, making it, for the first time, the biggest bank in Switzerland.

In 1965 UBS and other major Swiss banks found themselves unwillingly embroiled in an international controversy when nervous investors sparked a run on the British pound. Swiss banks, through their reputation as the world’s safest money havens, had accumulated substantial deposits in pounds sterling, and it was from them that unwanted pounds were withdrawn for sale on the currency markets. The banks themselves sank $80 million into stopping the panic, but the British were not impressed—Labor Party politicians derisively labeled them “the gnomes of Zurich.” In response, UBS Chairman Alfred Schaefer complained to Time, “These campaigns really wound us. At times it makes one melancholy.”

UBS underwent a burst of expansion in the late 1960s funded in large part by the 1967 acquisition of Interhandel, a Swiss financial company possessing substantial cash holdings from the sale of its majority stake in GAF, the American chemical concern. In 1968 UBS acquired four small domestic savings-and-mortgage banks, strengthening its mortgage banking operations. In 1969 it diversified into consumer lending, leasing, and factoring through the acquisition of four more domestic financial companies: Banque Orca, Abri Bank Bern, Aufina Bank, and AKO Bank.

UBS opened its first foreign branch office in 1967 in London. It continued to expand its overseas business in the 1970s, establishing Union Bank of Switzerland Securities Limited in London in 1975 and UBS Securities Incorporated in New York in 1979. Both of these subsidiaries were devoted to gaining a share of foreign underwriting markets.

But UBS lagged behind its competitors in expanding its foreign operations during a period when internationalization became the watchword of the financial industry all over the world. UBS was the last of the three largest Swiss banks to establish a branch office in the United States, which it finally did in 1970, in New York. Its foreign securities subsidiaries also remained small compared with those of Swiss Bank Corporation and Credit Suisse. UBS’s caution in testing international waters, however, was a longstanding matter of policy. The bank’s directors still remembered how the sudden termination of foreign business during World War II had delayed its recovery from the Depression, and concentrated instead on building up its domestic business long after its competitors had begun to internationalize.

Internationalizing in the 1980s

As a result, UBS began losing what international business it had in the 1980s because its operations were relatively unsophisticated. It also was faced with the fact that it had just about reached the limits of expansion in the domestic banking arena. Thus in the middle of the decade, under the leadership of Robert Holzach and Nikolaus Senn, who had become chairman and president, respectively, in 1980, the bank made a fresh assault on the Eurobond market in an attempt to become a leading European underwriter. In February 1985, UBS surprised Eurobond underwriters when it brought major bond issues worth a total of $850 million for Nestlé, Rockwell, IBM, and Mobil to market at unusually low yields. The low yields were meant to attract corporate customers who liked the prospect of paying lower interest rates on their issues, but left competing underwriters astonished by UBS’s aggressiveness and the high prices that it charged for the bonds. The general manager of a rival bank attributed its approach to the Eurobond market to the influence of the preponderance of Swiss army officers in UBS’s hierarchy. “They make immensely careful preparations before making a move, and then they throw all their power into an advance,” he told Euromoney in 1984.

UBS did not stop there in its late drive to internationalize. Anticipating the 1986 deregulation of Britain’s financial markets, it acquired the London brokerage and asset management house Phillips & Drew early that year. Also in 1986 it bought the West German bank Deutsche Länderbank, which it renamed Schweizerische Bankgesellschaft (Deutschland) AG, and established a Phillips & Drew office in Tokyo. In 1987, it opened an Australian merchant banking subsidiary, UBS Australia Limited.

During the summer of 1987, UBS sought to solidify its position in the London markets with a bid to take over the British merchant banker Hill Samuel Group PLC. The deal fell through, however, when UBS refused to accept Hill Samuel’s ship-broking and insurance services in the deal along with its core merchant banking businesses. Rumors circulated that UBS might then go after Kleinwort Benson, a British merchant bank that was reeling at the time from a slump in the bond market and a series of unfortunate acquisitions. As it turned out, however, UBS was having enough trouble digesting Phillips & Drew. The brokerage subsidiary lost £48 million as a result of the October 1987 stock market crash, but even before then an inadequate settlement system had cost it £15 million when a rush of bull market—inspired orders proved overwhelming. Between April 1987 and February 1988, UBS spent a total of £115 million on Phillips & Drew. Also in 1988 Senn took over the chairmanship of UBS; succeeding Senn in the presidency was Robert Studer, an investment banker who had previously served as director of the bank’s finance department.

A Period of Weakening: 1990-97

During the early 1990s, as the Swiss economy fell into a prolonged recession, UBS outperformed its main rivals, benefiting from its position as the most conservative of the Big Three. Because of its conservative strategy, UBS managed to avoid involvement in any number of infamous corporate collapses. The bank was able to continue its overseas expansion, acquiring Chase Investors, the U.S. money management unit of Chase Manhattan, in 1991. The unit was subsequently renamed UBS Asset Management (New York) Inc. Asia was the object of a number of expansionary moves, including the opening of offices in Taipei, Taiwan; Seoul, South Korea; Bangkok, Thailand; and Labuan, Malaysia, from 1991 to 1995. Furthermore, in 1992, UBS Securities (Hong Kong) Ltd. was established. In the United Kingdom, the Phillips & Drew unit returned to profitability in 1992 after years of red ink; the unit was renamed UBS Ltd. in 1993. Back home, UBS ventured into the life insurance market for the first time through the establishment of UBS Life, which opened for business in 1993. That year CS Holding, parent of Credit Suisse, outbid UBS in a battle for Switzerland’s fifth largest bank, the troubled Swiss Volksbank. Undeterred, UBS succeeded in expanding its domestic branch network the following year through the acquisition of five smaller banks. In September 1995 UBS entered into a partnership with Swiss Life, the country’s largest life insurer, to cooperate on the sale of insurance products; as part of the deal, UBS took a 25 percent stake in Swiss Life, and the latter gained a 50 percent share of UBS Life, which was renamed UBS Swiss Life. In its last major acquisition before the merger with Swiss Bank, UBS acquired the Cantonal Bank of Appenzell-Ausser-rhoden in 1996.

During the mid-1990s, UBS came under fire from dissident shareholders, critical of the conservative way the bank was being managed. The main opposition voice was that of Martin Ebner, a maverick financier who founded B K Vision AG in 1991. Through this investment trust, Ebner purchased shares of Swiss banks, including an 18 percent share in UBS—a holding that comprised nearly two-thirds of the overall holdings of the trust. BK Vision thus became the largest shareholder in UBS. Ebner attempted to leverage this holding into forcing changes at the bank, with his main argument being that UBS should reduce its exposure to retail banking and slash its bloated domestic branch network while at the same time ratcheting up its more lucrative operations, particularly asset management. After Ebner attempted to gain control of UBS in mid-1994, the bank responded with a shareholder proposal to unify what had been a two-class share structure, a move that would reduce Ebner’s power. The plan won narrow approval in late 1994, but subsequent lawsuits filed by Ebner—including charging Studer with criminal fraud—delayed the implementation of the share changeover. In 1996 Ebner opposed the election of Studer as chairman of UBS, an effort that failed but that garnered 31 percent of the shareholder votes, an indication of the level of investor dissatisfaction. Mathis Cabiallavetta was appointed president of the bank at this time.

By being such a constant distraction, Ebner’s battles with UBS management, though mostly unsuccessful, weakened the bank. The managers of CS Holding thought that UBS’s travails might present the opportunity for a merger of the two Swiss bank giants. They approached UBS about a merger in early 1996, only to be quickly rebuffed. Later in 1996, the prolonged Swiss recession having wreaked havoc on the bank’s loan portfolio, UBS announced that it would take a one-time charge of SFr 3 billion ($2.3 billion) to deal with problem loans. As a result, the bank reported a net loss for the year of SFr 348 million ($267 million), its first loss since World War II.

The embattled Studer compounded the bank’s difficulties by mishandling the sensitive issue of dormant bank accounts that had been held by Holocaust victims. Swiss banks had come under heavy criticism for their actions during World War II. Reports of the banks’ financial dealings with Nazi Germany were published, and Jewish groups pushed for reclamation of money that had been placed into Swiss bank accounts before World War II by victims of the Holocaust. The Swiss banks were initially reluctant to cooperate with these efforts—in part because of their traditional secrecy—but the resulting worldwide outcry forced the banks to publish lists of people who owned dormant accounts that had been opened before 1945, accounts that contained a total of SFr 61.2 million ($41.3 million) in them. Although UBS actually had far fewer dormant accounts than the other two members of the Swiss Big Three, the bank’s handling of the affair was a public relations disaster. In one of the two most infamous incidents, Studer declared on television that the Jewish money lost in the Swiss accounts amounted to “peanuts.” In the other, a security guard at the bank uncovered wartime records that were headed for the shredder, was subsequently fired, and was accused by Studer of violating secrecy laws. One consequence was that certain customers in the United States, including New York City, began boycotting UBS. In early 1997, the Big Three banks agreed to set up a SFr 100 million ($70 million) humanitarian fund for the victims of the Holocaust.

The Birth of UBS AG: 1998

By late 1997 it was readily apparent that Swiss Bank Corporation and Union Bank of Switzerland were two banks moving in opposite directions. Swiss Bank had well positioned itself to compete in the globalized financial services world through its 1990s acquisition spree that garnered it O’Connor & Associates, Brinson Partners, S.G. Warburg, and Dillon Read. By contrast, UBS was clearly reeling and had failed, unlike its two Swiss rivals, to complete any significant acquisitions in recent years (the newly named Credit Suisse Group had acquired Winterthur Insurance in a $9.51 billion deal in mid-1997). Thus, despite the combination of Swiss Bank and UBS announced in December 1997 being touted as a “merger of equals,” it quickly became clear that Swiss Bank was taking over UBS, even though the former (with assets of SFr 439 billion) was smaller than the latter (with assets of SFr 578 billion). About four-fifths of the top jobs at the new institution, which would adopt the new name UBS AG, went to executives from Swiss Bank. Ebner’s nemesis Studer was to have no role in the new bank. Finally, although Swiss Bank Chairman Blum would not continue on with UBS AG either, and Cabiallavetta was named chairman, it was Swiss Bank President Ospel who was certainly in charge of the new bank as its CEO.

Beyond the management details, the merger, which was consummated in late June 1998, created the second largest commercial bank in the world, with assets approaching $600 billion. It also ranked as the world’s largest private banking and asset management group, with assets under management of SFr 1.32 trillion. After uniting, the two banks began integrating their extensive domestic retail networks, slashing nearly a quarter of the overall workforce of 56,000. With these reductions, the engineers of the merger were seeking to create a much more profitable company, through annual cost savings of SFr 3 billion to SFr 4 billion within a period of three to four years. The merger got off to a rocky start, however, as the bank announced in the fall of 1998 that it was taking a SFr 950 million ($697 million) charge related to exposure to Long-Term Capital Management, a U.S. hedge fund that had nearly collapsed. The exposure stemmed from the activities of the old UBS, and Cabiallavetta resigned as part of the fallout from the affair. Alex Krauer, who had been a vice-chairman, took over as the new chairman. Also in 1998, UBS AG and Credit Suisse reached an agreement with the parties that had filed Holocaust-related class-action lawsuits in the United States. The two banks agreed to pay $1.25 billion into an escrow account to settle all claims.

During 1999 UBS AG began to pare back noncore operations and holdings, including selling about $2 billion in real estate. In February the bank terminated the 1995 agreement that had been signed by the old UBS and Swiss Life. UBS AG sold its stake in Swiss Life, and Swiss Life took full control of the UBS Swiss Life joint venture. On the acquisition side, the bank beefed up its private banking operations through two purchases: the European and Asian private banking activities of Bank of America and the Bermuda-based firm Global Asset Management. In February 2000 UBS AG announced a major reorganization of the bank’s activities into three main businesses: UBS Switzerland, which included retail and private banking within Switzerland; UBS Warburg, which included not only investment banking but also private banking outside of Switzerland; and UBS Asset Management, which took responsibility for institutional asset management and mutual funds. A fourth leg was gained in November 2000 through the acquisition of Paine-Webber Group Inc. for $11.8 billion. The purchase filled in a key gap in UBS AG’s global wealth management operations, namely North America. Founded in 1879, Paine Webber was the fourth largest brokerage firm in the United States, with client assets of $452 billion. Early in 2001 the Wall Street firm was renamed UBS Paine Webber. Also in 2001 Ospel moved up to become chairman, and in December Peter Wuffli became president after a short stint in that post by Luqman Arnold.

Following the purchase of Paine Webber, it appeared that UBS AG had settled into a period of consolidation and organic growth—large, headline-making acquisitions were no longer on the agenda. Smaller deals would continue to be made. In early 2002 the bank completed a well-publicized purchase of a 51 percent stake in the main trading business of Enron Corporation, the energy trading giant that had collapsed late in the previous year. It was expected that acquisitions to fill holes in the investment banking operations would be pursued. On the consolidation front, the UBS Asset Management unit was renamed UBS Global Asset Management in February 2002, and that name was to replace various regional brands that had been in use, including Brinson in North America and Phillips & Drew in the United Kingdom. In July of the same year, the UBS Switzerland unit was renamed UBS Wealth Management & Business Banking. Although the new UBS AG had not gotten off to a stellar start, a little more than four years after the megamerger its prospects for the future had brightened considerably.

Principal Subsidiaries

Armand von Ernst & Cie AG; Aventic AG; Banco UBS Warburg SA (Brazil); Bank Ehinger & Cie AG; BDL Banco di Lugano; Brinson Advisors Inc. (U.S.A.); Brinson Canada Co.; Brinson Partners (New York) Inc. (U.S.A.); Brinson Partners Inc. (U.S.A.); Cantrade Privatbank AG; Cantrade Private Bank Switzerland (CI) Limited (Jersey); EIBA “Eidgenössische Bank” Beteiligungs- und Finazgesellschaft; Factors AG; Ferner Lullin & Cie SA; Fondvest AG; Global Asset Management Limited (Bermuda); IL Immobilien-Leasing AG; Paine-Webber Capital Inc. (U.S.A.); PT UBS Warburg Indonesia (85%); PW Trust Company (U.S.A.; 99.6%); SG Warburg & Co. International BV (Netherlands); SG Warburg Securities SA; Thesaurus Continental Effekten-Gesellschaft Zürich; UBS (Bahamas) Ltd.; UBS (Cayman Islands) Ltd.; UBS (France) SA; UBS (Italia) SpA (Italy); UBS (Luxembourg) SA; UBS (Monaco) SA; UBS (Sydney) Limited (Australia); UBS (Trust and Banking) Ltd. (Japan); UBS (USA) Inc.; UBS Americas Inc. (U.S.A.); UBS Asset Management (Australia) Ltd.; UBS Asset Management (France) SA; UBS Asset Management (Italia) SIM SpA (Italy); UBS Asset Management (Japan) Ltd.; UBS Asset Management (Singapore) Ltd.; UBS Asset Management (Taiwan) Ltd. (84.1%); UBS Asset Management Holding Limited (U.K.); UBS Australia Limited; UBS Bank (Canada); UBS Beteiligungs-GmbH & Co. KG (Germany); UBS Capital (Jersey) Ltd.; UBS Capital AG; UBS Capital Americas Investments II LLC (U.S.A.); UBS Capital Asia Pacific Limited (Cayman Islands; 92.9%); UBS Capital BV (Netherlands); UBS Capital II LLC (U.S.A.); UBS Capital Latin America LDC (Cayman Islands); UBS Capital LLC (U.S.A.); UBS Capital Partners Limited (U.K.); UBS Capital SpA (Italy); UBS Card Center AG; UBS España SA (Spain); UBS Finance (Cayman Islands) Limited; UBS Finance (Curaçao) NV (Netherlands Antilles); UBS Finance (Delaware) LLC (U.S.A.); UBS Finanzholding AG; UBS Fund Holding (Luxembourg) SA; UBS Fund Holding (Switzerland) AG; UBS Fund Management (Switzerland) AG; UBS Fund Services (Luxembourg) SA; UBS Global Trust Corporation (Canada); UBS Immoleasing AG; UBS International Holdings BV (Netherlands); UBS Invest Kapitalanlagegesellschaft mbH (Germany); UBS Leasing AG; UBS Life AG; UBS Limited (U.K.); UBS O’Connor LLC (U.S.A.); UBS PaineWebber Inc. (U.S.A.); UBS PaineWebber Incorporated of Puerto Rico; UBS PaineWebber Inc. (U.S.A.); UBS Portfolio LLC (U.S.A.); UBS Principal Finance LLC (U.S.A.); UBS Private Banking Deutschland AG (Germany); UBS Realty Investors LLC (U.S.A.); UBS Securities Limited (U.K.); UBS Trust (Canada); UBS Trustees (Bahamas) Ltd.; UBS Trustees (Cayman) Ltd.; UBS Trustees (Jersey) Ltd.; UBS Trustees (Singapore) Ltd.; UBS UK Holding Limited; UBS UK Limited; UBS Warburg Asia Limited (China); UBS Warburg (France) SA; UBS Warburg (Italia) SpA (Italy); UBS Warburg (Japan) Limited (Cayman Islands); UBS Warburg (Malaysia) Sdn Bhd (70%); UBS Warburg (Nederland) BV (Netherlands); UBS Warburg AG; UBS Warburg Australia Corporate Finance Ltd.; UBS Warburg Australia Corporation Pty Limited; UBS Warburg Australia Equities Ltd.; UBS Warburg Australia Limited; UBS Warburg Derivatives Limited (China); UBS Warburg Hong Kong Limited; UBS Warburg International Ltd. (U.K.); UBS Warburg LLC (U.S.A.); UBS Warburg Ltd. (U.K.); UBS Warburg New Zealand Equities Ltd.; UBS Warburg Private Clients Ltd. (Australia); UBS Warburg Pte Limited (Singapore); UBS Warburg Real Estate Securities Inc. (U.S.A.); UBS Warburg Securities (España) SV SA (Spain); UBS Warburg Securities (South Africa) (Pty) Limited; UBS Warburg Securities Co. Ltd. (Thailand); UBS Warburg Securities India Private Limited (75%); UBS Warburg Securities Ltd. (U.K.); UBS Warburg Securities Philippines Inc.

Principal Operating Units

UBS Wealth Management & Business Banking; UBS Global Asset Management; UBS Warburg; UBS PaineWebber.

Principal Competitors

Credit Suisse Group; Citigroup Inc.; Deutsche Bank AG; HSBC Holdings pic; The Royal Bank of Scotland Group pic; Barclays PLC; Merrill Lynch & Co., Inc.; Goldman Sachs Group Inc.