02/19/2008

On 14 February 2008, UBS published its responses to Ethos' questions in connection with the request for a special audit submitted to the agenda of the Extraordinary General Meeting of 27 February 2008. Ethos acknowledges the effort made by UBS' Board of Directors and External Auditors to provide transparent answers to the shareholders. However, the answers provided, in particular those concerning the functioning of the risk management and control systems cannot be considered satisfactory. Consequently, Ethos maintains its request for a special audit and urges the shareholders to support this request.

In summary, at this stage, the analysis of the answers provided by UBS leaves the following interrogations open:

  • The statement regarding the separation of risk management and risk control functions, as required by the Swiss Federal Banking Commission (SFBC) in the Circular of 27.9.2006, does not seem convincing (answers 1.2 and 1.3). In particular, UBS admitted that the Risk Subcommittee (that included a delegate of the Chairman's office) seems to have exerted an influence, or participated in certain decisions related to both risk control and managing certain positions (answers 2.1 and 2.2).
  • The SFBC Circular of 27.9.2006 makes clear that the remuneration system of the risk control employees should be free of elements that could generate conflicts of interest. However, UBS admits that the variable part of the remuneration of these employees, while not directly dependent on the sectors they control, is related to the financial performances of the Bank. Inevitably, the latter was influenced by the results of the operations realised in the sector of mortgage loans in the United States (answer 5).
  • Finally and above all, the responses of UBS do not allow one to determine whether its risk management and risk control systems failed or not. In fact, it is stated at one point that «despite the significant losses we suffered in 2007, we believe that the high level precepts reflected in our Risk Management & Control Principles were and remain appropriate» (answer 1.3). However, on the other hand, UBS admits that the results presented by the Group's Internal Audit in June 2007 highlighted that «(i) improvements were required in analyzing, measuring and reporting risks inherent in sub-prime related activities and (ii) valuation uncertainties in both the Investment Bank and Dillon Read Capital Management portfolios were not sufficiently transparent and inherent risks were not adequately analysed» (answer 3.2). The apparent contradiction between these two answers fuels legitimate interrogations by shareholders regarding the functioning of the internal control services of UBS, as well as the efficiency of the organisational measures taken to remedy the observed failures.
Given the answers received from UBS, Ethos has decided to maintain its request for a special control on the agenda of the general meeting of 27 February. Ethos is of the opinion that an independent expert must be mandated to investigate and answer the questions included in the request of information of 18 December 2007. Clear answers are necessary for shareholders to exercise their voting rights knowledgeably. Ethos points out that these questions are part of the separate investigation conducted by the SFBC. However, in principle, the conclusions of this investigation will not be published integrally. UBS committed to disclose only the most important elements to the shareholders.
In light of the preceding explanations, Ethos urges the shareholders to participate or to be represented at the General Meeting and to vote in favour of the request of a special audit presented under item 1 of the agenda.
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