UBS, Switzerland's largest bank, said Thursday it will not take legal action against former executives and board members for the huge losses suffered during the U.S. subprime crisis that forced a bailout.
The bank, long the star of the Swiss banking industry, has faced intense public pressure from taxpayers enraged by having to pay for its rescue. UBS lost billions of dollars during the global economic crisis as well as the confidence of many investors during a lengthy tax dispute with the United States.
Kaspar Villiger, who took over as chairman 19 months ago, apologized "for all the difficult times that have been created," as he presented a transparency report on mistakes made by previous management.
However, he told a presentation that trying to recover losses through legal action would be expensive, bring the bank negative publicity and distract from moving forward. In addition, he argued that it would reflect negatively in class-action lawsuits pending in the United States against UBS and previous management, because U.S. lawyers see such legal action as an admission of guilt.
Villiger said that none of UBS's major shareholders have indicated they intend to pursue legal action of their own, and that such a step would only weaken the bank's share price.
The report noted that the bank had recovered 70 million Swiss francs ($73.5 million) from former directors or managers who either waived or repaid bonuses or salaries. Villiger said he doubted legal action could have recovered more than that.
"What happened should not have been allowed to happen. With our decision to refrain from legal proceedings, we do not want to gloss over the mistakes made by UBS or absolve those involved of their corporate responsibility," Villiger said in a statement, adding that the bank had learned lessons from the crisis.
"Today, we have laid the foundation for drawing a line under the future," he said.
The transparency report acknowledges that the bank's expansion into investment banking was not planned in a sufficiently systematic manner, that incentives to generate revenues were not weighed appropriately against risks, and that this happened across business units, multiplying the bank's exposure.
"Despite warnings, the bank falsely believed that its financial products in relation to the U.S. real estate market were valuable and sufficiently hedged against losses," the report said.
Regarding the U.S. tax dispute, the report acknowledged that the bank had not made a comprehensive assessment of the compliance risk of its U.S. cross-border wealth management business before the investigation by U.S. authorities.
UBS suffered losses of more than 50 billion swiss francs from the third quarter of 2007 to the fourth quarter of 2009, the largest losses tallied by any bank in Europe and third-largest in the world, Villiger said.
"This goes to show the losses were not only due to the crisis but had their internal reasons to a large extent," he said.
In an independent opinion attached to the report, Zurich law professor Peter Forstmoser said there was sufficient evidence to take legal action, but he called the decision not "appropriate" to protect the interests of the bank and the shareholders.