Marcel Ospel was still in charge at UBS when he spoke February in Basel. Known to be conservative, UBS bet on mortgage securities and lost.

By NELSON D. SCHWARTZ

BASEL, Switzerland - Normally, St. Jakob’s Hall here is home to soccer tournaments or the occasional hockey game. But on a sunny morning in February, the stadium offered a corporate face-off every bit as contentious as any athletic event. More than 6,000 shareholders of the Swiss banking giant UBS packed the house to vent their fury to UBS’s chairman, Marcel Ospel, over tens of billions in losses on American subprime mortgages and what they saw as an insult to traditional Swiss values like prudence and thrift.
“The American El Dorado has become a scene from a Western,” declared one middle-aged shareholder, Therese Klemenz. “UBS was the figurehead of Swiss business. As a good housewife, I know you shouldn’t put all your eggs in one basket. A bank is not a casino.”
Thomas Minder, a local shareholder activist, was even more outraged.
“What happened here is a scandal,” he thundered. “You’re responsible for the biggest loss in the history of the Swiss economy. Put an end to the Americanization of the Swiss economy!” At that point, Mr. Minder charged the podium, only to be dragged away by security guards.
The consequences of millions of home foreclosures across the United States are also being felt far overseas. Nowhere is that more true than in this serene land of snowy peaks, ice-cold lakes and staid banks long considered to be among the most cautious in the world.
Until now, that is. That’s because UBS - with $3.1 trillion in assets, Switzerland’s biggest bank - made an astonishingly large bet on risky mortgage securities. At one point, that wager amounted to $80 billion, a gambit the bank lost. UBS has already been forced to write down about $37 billion of that financial roll of the dice - more than any other bank in the world.
After months of fierce criticism, Mr. Ospel, 58, abruptly announced on April 1 that he would step down as chairman later this month. Shares of UBS rallied, but that’s of little comfort to people like Mrs. Kle menz, who have watched the stock drop by half since last summer.
During an interview at UBS’s headquarters in downtown Zurich on April 4, Mr. Ospel’s hands trembled and his eyes were cast ownwards.
“I’m the chairman of this firm and ultimately responsible for what has happened,” he said, taking a long drag on a cigarette. “But I have the highest respect and confidence for the leadership as it is now in charge.”
Mr. Ospel said he first became aware of the extent of the threat UBS was facing in early August - three months after its Dillon Read Capital Management hedge fund unit was closed after big trading losses. This was six weeks after the implosion of two highly leveraged Bear Stearns hedge funds kicked off the credit crisis for the rest of Wall Street.
“I remember when I came back from summer vacation, Rohner explained we had this gigantic exposure,” he recalled, referring to UBS’s chief executive, Marcel Rohner.
Like others at UBS interviewed for this article, Mr. Ospel said the bank’s failure stemmed from a fundamental misreading of the market for mortgage securities. But he also acknowledged that the losses showed that UBS’s vaunted risk-management system had broken down.
“The key issue is that the system operated within its limits, given the assumed quality and liquidity of the assets,” he said. “Clearly, there was a problem when you build such a concentrated exposure and it doesn’t appear on any of the appropriate radar screens.”
And he ruefully noted that until UBS’s disastrous foray into what turned out to be Wall Street’s riskiest market, the bank’s success in the United States was a source of satisfaction in Switzerland.
“People were proud that a Swiss firm had established such a significant footprint in the most competitive market on the globe,” he said. “So the greater the disappointment with what they have had to digest.”
UBS bought mortgage-backed securities on Wall Street, rather than making loans directly to American home buyers with bad credit histories and no assets, but that’s a distinction lost on the Swiss public.
“A large part of the population thinks we did what Countrywide did,” says Mr. Rohner, the UBS chief, referring to Countrywide Financial, the troubled California company that is the largest American mortgage lender. “People think we gave subprime mortgages in the U.S. We did not.”
Maybe so, but UBS still has more than $30 billion in exposure to securities linked to the kind of risky mortgages that Countrywide and other lenders doled out . And there’s no guarantee that there will be no more losses.
“We still have positions, and I can’t foretell the future,’’ Mr. Rohner acknowledges. “The real issue is that if liquidity dries up, there is no way out.”
These days, UBS executives are rushing around the globe reassuring clients that the bank doesn’t face the kind of threats that brought down the investment bank Bear Stearns last month.
That’s especially true in the United States, where UBS employs roughly 30,000 people, slightly more than in Switzerland itself.
“It’s been hard emotionally because we were the safe bank, the conservative bank, and we worked very hard on that,” says Daniel Coleman, an American who is a top equities executive with UBS’s investment bank in Stamford, Connecticut. “Mortgages were viewed as a safe, liquid asset, which turned out to be wrong.