Union Bank of Switzerland
Encyclopedia
Union Bank of Switzerland (UBS) was a large integrated financial services company located in Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

. The bank, which at the time was the second largest bank in Switzerland, merged with Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

 in 1998, to become UBS to form what was then the largest bank in Europe and the second largest bank in the World.

UBS, originally known as the Swiss Banking Association, was formed in 1912 through the merger of the Bank in Winterthur and Toggenburger Bank, both founded in the early 1860s. UBS then continued to grow through acquisitions, including Aargauische Kreditanstalt in 1919, Eidgenössische Bank in 1945, Interhandel Basel in 1967, Phillips & Drew
Phillips & Drew
Phillips & Drew was a large stockbroking partnership and company based in the City of London, England. It was fully acquired by the Union Bank of Switzerland in 1986, which itself merged with the Swiss Bank Corporation in 1998, to become UBS AG....

 in 1986, and Schroder, Munchmeyer, Hengst & Co.
Schroder, Munchmeyer, Hengst & Co.
Schröder, Münchmeyer, Hengst & Co. , was a German investment bank and private bank based in Hamburg, Germany. The firm was acquired in 1997 by UBS and the brand was eliminated in 2001.-History:...

 in 1997 among others.

The historical UBS logo features a horizontal acronym "UBS" referring to the "Union Bank of Switzerland", "Union de Banques Suisses" or "Unione di Banche Svizzere". The vertical acronym "SBG" refers to the name of the bank in German "Schweizerische Bankgesellschaft". "UBS" ceased to be considered a representational abbreviation for the Union Bank of Switzerland after the bank's 1998 merger with Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

 and is today considered a standalone brand.

The company

Prior to its merger with Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

, UBS operated as a full-service bank and a provider of wholesale financial services through its retail banking
Retail banking
Retail banking is banking in which banking institutions execute transactions directly with consumers, rather than corporations or other banks. Services offered include: savings and transactional accounts, mortgages, personal loans, debit cards, credit cards, and so forth.-Types of...

, commercial banking, investment banking
Investment banking
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities...

, asset management and wealth management
Wealth management
Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services...

 businesses. In 1997, prior to its merger with Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

, UBS operated 275 branches in Switzerland and 82 branches, subsidiaries and representative offices outside Switzerland. The company had approximately 27,611 employees, of which 19,355 worked in Switzerland and the remaining 8,256 employees were outside Switzerland. The bank had total assets of nearly 578 billion CHF and shareholders' equity of nearly 28 billion CHF as of the end of 1997.

Origins of the Union Bank of Switzerland

In 1862, The Bank in Winterthur was founded in Winterthur, Switzerland, with an initial share capital of 5 million CHF. The Bank in Winterthur operated primarily as a commercial bank, providing financing for a range of companies and projects. The bank would be involved in funding the Swiss Locomotive and Machine Works
Swiss Locomotive and Machine Works
Swiss Locomotive and Machine Works were a railway equipment manufacturer based in Winterthur in Switzerland...

, the famous Hotel Baur au Lac in Zurich and many other companies. The bank capitalized on its location at an important Swiss railroad junction and its large warehousing facilities allowed the bank to take advantage of the dramatic rise in cotton prices caused by the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...

. The Bank in Winterthur saw its share capital double by the end of the war.
Meanwhile, in 1863, the Toggenburger Bank was founded in Lichtensteig, Switzerland with an initial share capital of 1.5 million CHF. The Toggenburger Bank was a savings and mortgage bank for individual customers with a branch office network in Eastern Switzerland. In 1882, Toggenburger Bank opened a branch in St. Gallen
St. Gallen
St. Gallen is the capital of the canton of St. Gallen in Switzerland. It evolved from the hermitage of Saint Gall, founded in the 7th century. Today, it is a large urban agglomeration and represents the center of eastern Switzerland. The town mainly relies on the service sector for its economic...

 in eastern Switzerland and began to shift its operations there through the end of the 19th century.
The Union Bank of Switzerland was formed in 1912 when the Bank in Winterthur merged with the Toggenburger Bank. The combined bank had total assets of 202 million CHF and a total shareholders' equity of 46 million CHF. This combination was part of a larger trend toward concentration in the banking sector in Switzerland at the time. Through the next few years, the bank would begin to shift its operations to Zurich from its historical headquarters in the cities of Winterthur
Winterthur
Winterthur is a city in the canton of Zurich in northern Switzerland. It has the country's sixth largest population with an estimate of more than 100,000 people. In the local dialect and by its inhabitants, it is usually abbreviated to Winti...

 and St. Gallen, Switzerland. In 1917, UBS completed construction of a new headquarters in Zurich on Bahnhofstrasse, considered to be the Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...

 of Switzerland.

The new bank used different names in its three core languages: German, French and English. In German, the bank was Schweizerische Bankgesellschaft and was known by the initials SBG. The original English name for the combined bank was the Swiss Banking Association, but it was later changed to Union Bank of Switzerland in 1921 to mirror the French form of the name: Union de Banques Suisses. The bank's logo, introduced in 1966, would later reflect both the German SBG and the English and French name UBS.
UBS acquired a number of banks in its first decade as a combined bank and expanded its branch network, establishing representation throughout Switzerland by 1923. UBS acquired a controlling interest in Aargauische Creditanstalt in 1913 and Banque Ch. Masson & Cie. in 1916. Although the bank suffered during World War I and the postwar economic crises in Europe, UBS continued to make acquisitions after the conclusion of World War I. The bank purchased the remaining stake in Aargauische Creditanstalt in 1919 that it had not acquired in 1913. Also in 1919, the bank acquired Commandit-AG Weibel & Cie. in Fleurier
Fleurier
Fleurier was a municipality in the district of Val-de-Travers in the canton of Neuchâtel in Switzerland. On 1 January 2009, the former municipalities of Boveresse, Buttes, Couvet, Fleurier, Les Bayards, Môtiers, Noiraigue, Saint-Sulpice and Travers merged to form Val-de-Travers.The Nobel...

 and William Cuénod & Cie. In 1920, UBS acquired Banca Svizzera-Americana with branches in Locarno
Locarno
Locarno is the capital of the Locarno district, located on the northern tip of Lake Maggiore in the Swiss canton of Ticino, close to Ascona at the foot of the Alps. It has a population of about 15,000...

 and Lugano
Lugano
Lugano is a city of inhabitants in the city proper and a total of over 145,000 people in the agglomeration/city region, in the south of Switzerland, in the Italian-speaking canton of Ticino, which borders Italy...

; Unionbank Geneva and Banque Henry Rieckel & Cie., based in La Chaux-de-Fonds
La Chaux-de-Fonds
La Chaux-de-Fonds is a Swiss city of the district of La Chaux-de-Fonds in the canton of Neuchâtel. It is located in the Jura mountains at an altitude of 1000 m, a few kilometres from the French border. After Geneva and Lausanne, it is the third largest city of Romandie, the French-speaking part of...

. Three years later, in 1923, UBS acquired the Schweizerische Vereinsbank in Bern establishing representation in the last of the major cities in Switzerland.
Through the Great Depression, UBS pared its assets considerably shrinking from 993 million CHF in 1929 to 441 million CHF at the end of 1935. The bank saw its shareholders' capital decline from 100 million CHF in 1929 to 80 million CHF in 1933 and then further to 40 million CHF by 1936. However, the bank continued to acquire smaller, weaker competitors, purchasing Banca Unione di Credito in Lugano
Lugano
Lugano is a city of inhabitants in the city proper and a total of over 145,000 people in the agglomeration/city region, in the south of Switzerland, in the Italian-speaking canton of Ticino, which borders Italy...

 and Chiasso
Chiasso
Chiasso is a municipality in the district of Mendrisio in the canton of Ticino in Switzerland.As the southernmost of Switzerland's municipalities, Chiasso is located at the border with Italy, in front of Ponte Chiasso...

 in 1935 followed by Berner Handelsbank in Bern in 1938. In 1937, UBS established Intrag AG, an asset management business responsible for investment trust
Investment trust
An Investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies....

s (i.e., mutual funds) and set up the "America-Canada Trust Fund AMCA". Over the years, Intrag would set up a series of other funds, including the "Mutual Fund for Swiss Stocks FONSA" and the "South Africa Trust Fund SAFIT".

The Bank in Winterthur and the Toggenburger Bank merge to form the Schweizerische Bankgesellschaft. Its French name is Union de Banques Suisses (UBS) and its Italian name is Unione di Banche Svizzere (UBS). The English name of the bank at first is Swiss Banking Association. In 1921 that somewhat inappropriate name is changed into Union Bank of Switzerland (UBS).

The merged bank shows the following figures for 1912:
Total assets: 202 million CHF. Shareholders' Equity: 46 million CHF. Profit: 2.4 million CHF.
Dr. Rudolf Ernst (1865–1956)

First Chairman of the Board of Directors of the merged bank from 1912 until 1941 is Rudolf Ernst, of Winterthur, until 1921 alternating with C. Emil Grob-Halter of Lichtensteig.

After the merger of the Bank in Winterthur and the Toggenburger Bank to form Union Bank of Switzerland (UBS), Dr. Rudolf Ernst became the merged bank's first chairman in 1912. Following his resignation in 1941, he was elected as an Honorary chairman of Union Bank of Switzerland.

Rudolf Ernst joined the Bank in Winterthur in 1895. He was also financial director of the City of Winterthur for 16 years. At the young age of 36, he was elected in 1901 to the Board of Directors of the Bank in Winterthur and as its chairman at the same time. During his chairmanship, the bank changed its focus from its original lending business and began to expand its issuing and asset management franchise. With the acquisition of the Bank in Baden in 1906, the bank gained a branch in Zurich and a seat on the stock exchange, one of the cornerstones for the successful merger in 1912 with the Toggenburger Bank to form Union Bank of Switzerland. Rudolf Ernst also held directorships on the boards of various industrial and insurance companies. Between 1912 and his retirement in 1941, he was chairman of the Board of Union Bank of Switzerland, in an alternating capacity with Carl Emil Grob-Halter, who held the chairmanship in 1916 and 1918 as the representative of the merger partner Toggenburger Bank.

Activities in World War II

On the eve of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

, UBS was the recipient of a large influx of foreign funds for safekeeping. During the war, the bank's traditional business fell off and the Swiss government became their largest clients. Still, unlike many of its peers, UBS's business lagged through much of the war.

Decades after the war, it was demonstrated that Union Bank of Switzerland likely took active roles in trading stolen gold, securities and other assets during World War II. The issue of "unclaimed property" of Holocaust victims became a major issue for UBS in the mid-1990s and a series of revelations in 1997 brought the issue to the forefront of national attention in 1996 and 1997. UBS confirmed that a large number of accounts that had gone unclaimed as a result of the bank's policy of requiring death certificates from family members to claim the contents of the account. UBS's handling of these revelations were largely criticized and the bank received significant negative attention in the U.S. UBS came under significant pressure, particularly from American politicians, to compensate Holocaust survivors who were making claims against the bank.

In January 1997, Christoph Meili
Christoph Meili
Christoph Meili is a Swiss whistleblower and Swiss-American security professional.In early 1997, Meili worked as a night guard at the Union Bank of Switzerland in Zurich, Switzerland...

, a night watchman at the Union Bank of Switzerland, found employees shredding archives compiled by a subsidiary that had extensive dealings with Nazi Germany
Nazi Germany
Nazi Germany , also known as the Third Reich , but officially called German Reich from 1933 to 1943 and Greater German Reich from 26 June 1943 onward, is the name commonly used to refer to the state of Germany from 1933 to 1945, when it was a totalitarian dictatorship ruled by...

. The shredding was in direct violation of a recent Swiss law adopted in December 1996 protecting such material. UBS acknowledged that it had "made a deplorable mistake", but an internal historian maintained that the destroyed archives were unrelated to the Holocaust. Criminal proceedings then began against the archivist for possible violation of a recent Federal Document Destruction decree and against Meili for possible violation of bank secrecy
Bank secrecy
Bank secrecy is a legal principle in some jurisdictions under which banks are not allowed to provide to authorities personal and account information about their customers unless certain conditions apply...

, which is a criminal offence in Switzerland. Both proceedings were discontinued by the District Attorney in September 1997.

Meili was suspended from his job at the security company that served UBS, following a criminal investigation. Meili and his family left Switzerland for the United States where they were granted political asylum. By contrast, in the U.S., Meili was largely regarded as a hero and whistleblower
Whistleblower
A whistleblower is a person who tells the public or someone in authority about alleged dishonest or illegal activities occurring in a government department, a public or private organization, or a company...

 and received a particularly warm reception from the American Jewish community.

In 1997, the World Jewish Congress lawsuit against Swiss banks
World Jewish Congress lawsuit against Swiss banks
The World Jewish Congress lawsuit against Swiss banks was launched to retrieve deposits made by victims of Nazi persecution during and prior to World War II.-Negotiations:...

 (WJC) was launched to retrieve deposits made by victims of Nazi persecution during and prior to World War II. Negotiations involving Union Bank of Switzerland, Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...

, the WJC and Stuart Eizenstat, on behalf of the U.S., ultimately resulted in a settlement of $1.25 billion in August 1998. The settlement, which coincided with UBS's merger with Swiss Bank, together with the bank's embarrassment in the Long Term Capital Management collapse in 1998 brought a degree of closure to the issue.

1945–1979

Shortly after the end of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

, UBS completed the acquisition of Eidgenössische Bank, a large Zurich-based bank that became insolvent. As a result of the merger, UBS exceeded 1 billion CHF of assets for the first time and completed the transition of its operations to Zurich. Although UBS opened an office in New York in 1946, the bank remained primarily focused on its domestic business. Prior to the end of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

, the Swiss banking landscape was dominated by Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

 and Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...

. UBS was among the next group of large banks that included Schweizerische Volksbank (Swiss Volksbank or Swiss Popular Bank) and Bank Leu
Bank Leu
Bank Leu AG was a Swiss private bank that existed from 1755 to 2007. Headquartered in Zurich, it was a subsidiary of Credit Suisse from 1990. In 2007, it was merged with that company's other private banking units as Clariden Leu. At the time, it was the oldest bank in Switzerland.The bank was...

. Throughout the 1950s and 1960s, the Union Bank of Switzerland, which was at best the third largest bank in Switzerland would catch up to its larger peers and by the 1970s surpass them in terms of size.

UBS opened branches and acquired a series of banks in Switzerland growing from 31 offices in 1950 to 81 offices by the beginning of the 1960s. Throughout the 1950s, UBS was the most acquisitive bank in Switzerland, acquiring Banque Palézieux & Cie. (1948), Volksbank Interlaken (1952), Weck, Aebi & Cie (1954), Banque Tissières fils & Cie. (1956), Banque de Sion (1956), Banque de Brigue (1957), the Crédit Gruyérien (1957), Crédit Sierrois (1957), Bank Cantrade AG (1960) and Volksbank in Visp (1960).

In addition to these bank acquisitions, UBS also acquired an 80% stake in Argor SA, a Swiss precious metal refinery founded in 1951, through whom they started to issue UBS branded gold bars. In 1973, the bank increased the stake to full 100% ownership only to withdraw by 1999 with ownership of the refinery changing to Hereaus & Management. Nevertheless, UBS continues to issue gold bars via Argor-Heraeus which is famous for the unique kinebar
Kinebar
A kinebar is a gold bar which contains a Kinegram to prove its authenticity. Kinegram is a trademark of OVD Kinegram Corp. . A kinegram is a diffractive security device embossed into a substrate . It is intended both as a security feature and for visual appeal...

 holographic technology it uses to provide enhanced protection against bank gold bar counterfeiting.
By 1962, UBS reached 6.96 billion CHF of assets, narrowly edging ahead of Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

 to become the largest bank in Switzerland temporarily. Through 1979, SBC was consistently the largest of the three major Swiss banks by assets, except for short periods in 1962 and then again in 1968 when UBS temporarily moved ahead of SBC. After 1979, UBS would firmly establish itself as the largest Swiss bank. UBS would retain this position for the next 15 years until Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...

 leapfrogged into the top spot following its 1993 acquisition of Schweizerische Volksbank (Swiss Volksbank) and later Winterthur Group
Winterthur Group
AXA Winterthur is a multinational insurance company. The original company named Winterthur was founded in Winterthur, Switzerland, in 1875. Until June 2006, Winterthur was a Credit Suisse subsidiary. Now, Paris-based AXA Insurance has entered into a definitive agreement to purchase Winterthur...

.

UBS continued its rapid growth in the 1960s punctuated by the acquisition of Interhandel
Interhandel
Interhandel was a Swiss conglomerate, known for its long-running disputes with the U.S. government over German ownership during World War II. Interhandel, which had both financial as well as industrial holdings was the corporate successor of I.G. Chemie, which the U.S. government had claimed was a...

 (Industrie- und Handelsbeteiligungen AG) in 1967. Interhandel, originally, was a large Swiss conglomerate that up until the 1960s had both financial as well as industrial holdings. Interhandel was the corporate successor of I.G. Chemie, which the U.S. government had claimed was a front for Germany's I.G. Farben during World War II. During the war, the U.S. government seized General Aniline & Film (later GAF Corporation), an Interhandel subsidiary, and it was not until 1963 that the long-running dispute between Interhandel and the U.S. government was resolved. The shares in GAF Corporation were sold in a highly competitive auction in 1965 and the proceeds were split between Interhandel and the U.S. government. As a result of the sale of GAF, at the time of its merger with UBS, Interhandel held substantial amounts of cash. The addition of the Interhandel capital, which propelled UBS into the top spot among Swiss banks in 1968, also made UBS one of the strongest banks in Europe and helped fuel the bank’s further expansion in the late 1960s and 1970s. UBS consolidated four affiliated mortgage lenders and assumed their domestic retail operations. The bank further expanded into consumer lending through the acquisition of a series of Swiss financial businesses in 1969, including Banque Orca, Abri Bank Bern, Aufina Bank and AKO Bank.

UBS also began to intensify its overseas expansion. In 1967, UBS opened a full branch office in London, its first such office outside Switzerland. Prior to this, UBS had operated through a series of correspondent banks and representative offices. Three years later, UBS opened a branch office in New York. The bank also established a UK subsidiary in 1975 and a U.S. subsidiary in 1979 to focus on building the bank’s presence in the underwriting of debt and equity securities. Nevertheless, UBS, which had traditionally concentrated its efforts on the domestic Swiss market, was the last of the three largest Swiss banks to establish a branch office in the U.S. and its securities operations were overshadowed by those of its two Swiss peers.

1980–1998

By the 1980s, the bank had undertaken a major push into the securities business internationally. The bank established a position as a leading European underwriter of Eurobonds and pulled off a major coup in 1985 by pricing a large bond offering for Nestlé, Rockwell, IBM, and Mobil at below market rates.
The bank also made two major acquisitions in 1986, first it purchased Phillips & Drew
Phillips & Drew
Phillips & Drew was a large stockbroking partnership and company based in the City of London, England. It was fully acquired by the Union Bank of Switzerland in 1986, which itself merged with the Swiss Bank Corporation in 1998, to become UBS AG....

 an established British brokerage and asset management firm, founded in 1895. However, UBS initially had issues integrating Phillips & Drew
Phillips & Drew
Phillips & Drew was a large stockbroking partnership and company based in the City of London, England. It was fully acquired by the Union Bank of Switzerland in 1986, which itself merged with the Swiss Bank Corporation in 1998, to become UBS AG....

. The firm lost £15 million when a rush of orders overwhelmed the firm’s settlement system in 1987. Then the bank lost £48 million as a result of Philips & Drew positions in the October 1987 stock market crash. Between April 1987 and February 1988, UBS was required to spend as much as £115 million to shore up Phillips & Drew. Phillips & Drew unit returned to profitability in 1992 after years of losses. UBS also expanded into West Germany, acquiring Deutsche Länderbank in 1986.

In 1991, UBS made its first acquisition in the United States, purchasing Chase Investors Management Corporation, the asset management business of Chase Manhattan Bank
Chase Manhattan Bank
JPMorgan Chase Bank, N.A., doing business as Chase, is a national bank that constitutes the consumer and commercial banking subsidiary of financial services firm JPMorgan Chase. The bank was known as Chase Manhattan Bank until it merged with J.P. Morgan & Co. in 2000...

. Chase Investors, which was established in 1972, was subsequently folded into UBS Asset Management after the acquisition. At the time of the acquisition, which resulted in approximately $100 million for Chase, the business managed in excess of $30 billion in public and private pension plans, as well as various financial assets of corporations, governments, foundations and endowments.

UBS also entered the life insurance
Life insurance
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger...

 business in 1993 establishing UBS Life. UBS formed a joint venture with Swiss Life
Swiss Life
The Swiss Life Group is the largest life insurance company of Switzerland. The firm is headquartered is in Zurich. The Swiss Life Group has 7,500 employees and had assets under management of approximately CHF 133 billion in 2010.-Foundation and growth:...

 in 1995, known as UBS Swiss Life. UBS took a 25% ownership position in Swiss Life in exchange for a 50% share in the joint venture.

UBS entered the 1990s clearly the largest and most conservative of the three large Swiss Banks. Unlike Swiss Bank and Credit Suisse, which had both made aggressive international acquisitions in trading and investment banking, UBS’s investments had been more conservative in businesses such as asset management and life insurance while 60% of the bank's profits came from its even more conservative Swiss banking operations. In 1993, Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...

 outbid UBS for Switzerland's Swiss Volksbank, the fifth largest bank in Switzerland which had run into financial difficulties in the early 1990s. The acquisition propelled Credit Suisse ahead of UBS as the largest bank in Switzerland for the first time. UBS instead settled on a group of less audacious acquisitions, purchasing a group of smaller banks in Switzerland in 1994 and then acquiring the Cantonal Bank of Appenzell-Ausserrhoden in 1996.

In its final acquisition, prior to the merger with Swiss Bank Corporation, the bank acquired Schroder, Munchmeyer, Hengst & Co.
Schroder, Munchmeyer, Hengst & Co.
Schröder, Münchmeyer, Hengst & Co. , was a German investment bank and private bank based in Hamburg, Germany. The firm was acquired in 1997 by UBS and the brand was eliminated in 2001.-History:...

 from Lloyds Bank
Lloyds Bank
Lloyds Bank Plc was a British retail bank which operated in England and Wales from 1765 until its merger into Lloyds TSB in 1995; it remains a registered company but is currently dormant. It expanded during the nineteenth and twentieth centuries and took over a number of smaller banking companies...

 in 1997 in order to further penetrate the German investment banking market as well as the market for wealthy private clients. Schroder Munchmeyer Hengst was formed through the 1969 merger of three German banks: Schroeder Brothers & Co., Muenchmeyer & Co. and Frederick Hengst & Co. (formerly known as Bank Siegmund Merzbach).

Merger with Swiss Bank Corporation

During the mid-1990s, UBS came under fire from dissident shareholders, critical of bank's relatively conservative management and lower return on equity. Martin Ebner, through his investment trust, BK Vision became the largest shareholder in UBS and attempted to force a major restructuring of the bank’s operations. The battles between Ebner and UBS management proved a distraction to the bank in the mid-1990s. Looking to take advantage of the situation, Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...

 approached UBS about a merger that would have created the second largest bank in the world in 1996. UBS's management and board unanimously rebuffed the proposed merger. Ebner, who supported the idea of a merger, led a major shareholder revolt that resulted in the replacement of UBS's chairman, Robert Studer. Studer's successor Mathis Cabiallavetta would be one of the key architects of the merger with Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

.
On 8 December 1997, Union Bank of Switzerland and Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

 announced an all stock merger. At the time of the merger, Union Bank of Switzerland and Swiss Bank Corporation were the second and third largest banks in Switzerland, respectively both trailing Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...

. Discussions between the two banks had begun several months earlier, less than a year after rebuffing Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...

's merger overtures.

The all-stock merger resulted in the creation UBS AG
UBS AG
UBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...

, a huge new bank with total assets of more than $590 billion. Also referred to as the "New UBS" to distinguish itself from the former Union Bank of Switzerland, the combined bank became the second largest in the world, at that time, behind only the Bank of Tokyo-Mitsubishi. Additionally, the merger pulled together the banks' various asset management businesses to create the world's largest money manager, with approximately $910 billion in assets under management.

The merger, which was billed as a merger of equals, resulted in UBS's shareholders receiving 60% of the combined company and Swiss Bank's shareholders receiving the remaining 40% of the bank's common shares. UBS's Mathis Cabiallavetta
Mathis Cabiallavetta
Mathis Cabiallavetta is a director of Philip Morris International and BlackRock.Mr. Cabiallavetta is Chairman of Marsh & McLennan Companies and a member of MMC International's Advisory Board. Prior to joining MMC in 1999, Mr. Cabiallavetta was Chairman of the Board of Union Bank of Switzerland,...

 became chairman of the new bank while Swiss Bank's Marcel Ospel
Marcel Ospel
Marcel Louis Ospel was a former Chairman of the Board of Directors of UBS AG, the largest bank in Switzerland.Marcel Ospel had an income in 2005 of around 24 million CHF....

 was named chief executive officer. However, it quickly became evident that from a management perspective, it was Swiss Bank that was buying UBS as nearly 80% of the top management positions were filled by legacy Swiss Bank professionals. Additionally, UBS professionals suffered more headcount reductions, particularly in the investment banking unit where there were heavy cuts in the corporate finance and equities businesses. The more severe cuts at UBS were an acknowledgment that prior to the merger Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

 had built a global investment banking business, Warburg Dillon Read
Warburg Dillon Read
Warburg Dillon Read was an investment bank created by the Swiss Bank Corporation , following its 1997 acquisition of S. G. Warburg & Co. which it merged with Dillon, Read & Co., a firm it had acquired in 1995. SBC itself merged with the Union Bank of Switzerland in 1998, creating UBS AG...

 through its acquisitions of Dillon Read in New York and S.G. Warburg in London. Swiss Bank was generally considered to be further along than UBS in developing its international investment banking business, particularly in the higher margin advisory businesses where Warburg Dillon Read
Warburg Dillon Read
Warburg Dillon Read was an investment bank created by the Swiss Bank Corporation , following its 1997 acquisition of S. G. Warburg & Co. which it merged with Dillon, Read & Co., a firm it had acquired in 1995. SBC itself merged with the Union Bank of Switzerland in 1998, creating UBS AG...

 was considered to be the more established platform. UBS, on the other hand had a stronger retail and commercial banking business in Switzerland and both banks had notably strong asset management capabilities.

After the merger was completed, it was widely speculated that a series of losses suffered by UBS on its equity derivative
Equity derivative
In finance, an equity derivative is a class of derivatives whose value is at least partly derived from one or more underlying equity securities. Options and futures are by far the most common equity derivatives, however there are many other types of equity derivatives that are actively...

 positions in late 1997 was a contributing factor in pushing UBS management to consummate the merger. It would become clear that the derivatives losses prompted UBS to accept the terms proposed by Swiss Bank more readily than they otherwise would have.

Long-Term Capital Management

Union Bank of Switzerland, suffering criticism of its conservative business model, was looking for ways to catch up to its key Swiss rivals and viewed LTCM as the type of client that could help accelerate the bank's growth. In 1997, UBS entered into a financing arrangement with LTCM and the hedge fund quickly became the bank's largest client, generating $15 million in fees for UBS. Union Bank of Switzerland sold LTCM a 7-year European
Option style
In finance, the style or family of an option is a general term denoting the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American options. These options - as well as others where the...

 call option
Call option
A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option. The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument from the seller...

 on 1 million shares in LTCM, then valued at about $800 million. It hedged this option by purchasing a $800 million interest in LTCM and invested a further $300 million in the hedge fund. Following the merger, Swiss Bank managers were surprised to discover the massive exposure to LTCM at UBS. Ultimately, UBS was unable to sell or hedge its interest in LTCM as its value declined in the summer of 1998.

By November 1998, UBS's losses from its exposure to LTCM were estimated at approximately 790 million CHF. UBS would prove to be the largest single loser in the LTCM collapse, ultimately writing off 950 million CHF. The Federal Reserve Bank of New York
Federal Reserve Bank of New York
The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York state, the 12 northern counties of New Jersey,...

 organized a bailout of $3.625 billion by the hedge fund's major creditors to avoid a wider collapse in the financial markets. UBS contributed $300 million to the bailout effort, which would largely be recovered. In the aftermath of the LTCM collapse, Mathis Cabiallavetta
Mathis Cabiallavetta
Mathis Cabiallavetta is a director of Philip Morris International and BlackRock.Mr. Cabiallavetta is Chairman of Marsh & McLennan Companies and a member of MMC International's Advisory Board. Prior to joining MMC in 1999, Mr. Cabiallavetta was Chairman of the Board of Union Bank of Switzerland,...

 resigned as chairman of UBS along with three other executives.

Acquisition history

Union Bank of Switzerland, prior to its merger with Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...

 was the result of the combination of dozens of individual firms, many of which date to the 19th century. The following is an illustration of the company's major mergers and acquisitions and historical predecessors, although this is not necessarily a comprehensive list:
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