Pictet-owned broker Helvea has blames UBS’s integrated bank concept for destroying shareholder value and has downgraded its basic earnings per share forecast for 2008 by 12 per cent.

Pictet-owned broker Helvea has blames UBS’s integrated bank concept for destroying shareholder value and has downgraded its basic earnings per share forecast for 2008 by 12 per cent.

The $10 billion fourth quarter subprime write-downs announced on Monday did not come as a surprise, said Helvea, because it merely brought UBS in to line with other international banks like Merrill Lynch, Morgan Stanley and Citigroup.

But uncertainties persisted about further significant write-downs, it said, and these had been reinforced by the sizeable capital-raising measures, which it considers to be excessive, to cover the current disclosed problems. UBS chief executive Marcel Rohner had also not ruled out that more write-downs might be necessary on the bank's exposures.

Meanwhile press reports that UBS had been forced to make the write-downs by its auditors and the Swiss Federal Banking Commission, rather than the bank’s management, had further undermined UBS’s reputation for conservative accounting and the integrity of its communication with investors, it said.

UBS investment bank had built a SFr2 trillion balance sheet and has already stated that it intends to reduce this by SFr600 billion. Helvea said it wanted to see several quarters in which the bank can shrink the investment bank’s balance sheet without incurring yet more write-downs before beginning to give the bank and its current management the benefit of the doubt.

The capital-raising measures also seemed unnecessary. "We suspect that UBS fears that it may have to make further hefty write-downs in either its subprime portfolio or the rest of its large investment-banking balance sheet," it said.

Helvea was dissatisfied both with UBS's justification for the capital increase – that it was necessary to reassure its private banking customers – and because management had previously indicated that it would reduce risk-weighted assets and sell non-core assets before cutting the dividend, let alone raise additional capital.

It agreed that private banking customers would have been unnerved by UBS attracting so much negative publicity and incurring losses, but said this reputational risk was another problem of the "integrated banking model" that UBS chairman Marcel Ospel was so keen to promote.

The proposed capital increase at UBS was all the more surprising, Helvea said, because it believed that the complete reversal in UBS’s attitude to raising capital would not have been undertaken by management, unless it had been put under intense pressure, presumably by the Swiss regulator.

"UBS continues to promote its integrated banking concept in which the investment bank operates alongside the private bank and the asset-management business," said Helvea. "The folly of this arrangement must surely be plain for all investors to see as the errors of the investment bank over sub-prime have damaged the bank’s reputation with its private-banking customers."