Has Ubs Found Its Way Out Of The Woods?

If Union Bank of Switzerland executives felt cocky about merging with Swiss Bank Corp. last June to create the world's biggest bank, what followed was enough to puncture any corporate ego. Its investment-banking unit, Warburg Dillon Read, lost more than $1 billion from derivatives trading and a risky stake in troubled U.S. hedge fund Long-Term Capital Management. The disclosure led to a profit warning and forced the resignation of Chairman Mathis Cabiallavetta. On top of it all, under international pressure, UBS had to pony up some $610 million to compensate Holocaust survivors and their heirs for assets the bank had hidden.

No one expects 1999 to be equally disaster-ridden. Many analysts predict UBS will as much as double its 1998 earnings this year, as world stock markets recover and Warburg puts last year's fiascoes behind it. The stock price reflects this optimism: At $335 on Mar. 17, UBS shares were 44% above their October trough. But long-term, shareholders want to see solid gains in UBS's strategy of melding a powerhouse investment bank with more traditional banking. Otherwise, the optimism could fade fast.