Union Bank of Switzerland

Union Bank of Switzerland
	File:UBS logo 1986-1998.svg UBS logo used before the 1998 merger
Company type	Public company
Industry	Banking, financial services
Predecessor	Bank in Winterthur, Toggenburger Bank
Founded	1912; 114 years ago
Defunct	1998
Fate	Merged with Swiss Bank Corporation to form UBS AG
Headquarters	Zürich, Switzerland
Area served	Switzerland, Europe, United States, United Kingdom, Germany
Key people	Dr. Rudolf Ernst (first chairman)
Products	Commercial banking, investment banking, asset management, insurance

Union Bank of Switzerland (UBS) was a Swiss investment bank and financial services company. Ranking as Switzerland's second-largest bank, it combined forces with Swiss Bank Corporation in 1998, resulting in the creation of UBS, which at that time became the largest bank in Europe and the second largest globally.

UBS traced its roots back to 1912 when the Bank in Winterthur merged with Toggenburger Bank, both initially established in the early 1860s. The institution grew by acquiring several entities, including Aargauische Kreditanstalt (1919), (1945), Interhandel Basel (1967), Phillips & Drew (1986), and Schröder, Münchmeyer, Hengst & Co. (1997).

The traditional UBS emblem featured "UBS" alongside vertical "SBG" letters, symbolizing its German designation. Following the 1998 merger, "UBS" emerged as the sole brand identity.

Founding of Union Bank of Switzerland

The Bank in Winterthur was established in 1862 with an initial capital of CHF5 million, concentrating on commercial banking and financing Swiss industrial enterprises such as Swiss Locomotive and Machine Works and the Baur au Lac hotel. Its advantageous position at a railway junction enabled it to benefit from cotton price increases during the American Civil War, effectively doubling its capital by the war’s conclusion.

Toggenburger Bank began operations in 1863 as a savings and mortgage institution serving Eastern Switzerland, progressively extending its branch network, notably reaching St. Gallen by the late 1800s.

The 1912 union of these banks created Union Bank of Switzerland, boasting CHF202 million in assets and CHF46 million in equity, reflecting ongoing consolidation within Swiss banking. The headquarters relocated to Zürich, where in 1917 UBS inaugurated its Münzhof building on Bahnhofstrasse, establishing a firm foothold within Switzerland’s financial center.

The bank was known by several names: Schweizerische Bankgesellschaft (SBG) in German, Union de Banques Suisses in French, and initially Swiss Banking Association in English before officially adopting Union Bank of Switzerland in 1921. The logo introduced in 1966 incorporated both SBG and UBS elements.

By 1923, UBS had expanded its nationwide branch system through acquisitions such as Aargauische Creditanstalt (initial controlling interest obtained in 1913, full ownership by 1919), Banque Ch. Masson & Cie. (1916), Banca Svizzera-Americana (1920), Unionbank Geneva (1920), Banque Henry Rieckel & Cie. (1920), and Schweizerische Vereinsbank (1923).

During the Great Depression, UBS’s total assets shrank from CHF993 million in 1929 to CHF441 million by 1935, while equity dropped from CHF100 million to CHF40 million by 1936. Despite these challenges, it acquired smaller institutions like Banca Unione di Credito (1935) and Berner Handelsbank (1938). In 1937, UBS established Intrag AG to oversee investment trusts focusing on portfolios of Swiss equities and international markets.

At its inception in 1912, the merged bank reported total assets of CHF202 million; shareholders’ equity of CHF46 million; and profits amounting to CHF2.4 million.

Dr. Rudolf Ernst (1865–1956)

Dr. Rudolf Ernst was the inaugural chairman of UBS from its establishment until 1941, initially alternating leadership with Carl Emil Grob-Halter who represented Toggenburger Bank interests. Ernst joined Bank in Winterthur in 1895 and was appointed chairman there in 1901, guiding a strategic pivot towards issuing services and asset management that paved the way for the successful merger.

During his tenure, UBS increased its branch network—including securing a Zürich stock exchange membership through acquiring Bank in Baden—and diversified its business activities beyond traditional lending. Ernst also served on boards within industrial and insurance sectors. He retired from his chairmanship role in 1941 and was subsequently honored with the title Honorary Chairman.

Operations During World War II

As World War II approached, UBS experienced a substantial increase in foreign funds entrusted to it for protection. Throughout the conflict, its conventional banking activities diminished, with the Swiss government emerging as its principal client. Unlike many other institutions, UBS's business growth was limited for much of the war period.

Years later, evidence surfaced indicating that Union Bank of Switzerland was probably involved in trading assets such as stolen gold and securities during World War II. The matter of "unclaimed property" belonging to Holocaust victims became a significant issue for UBS during the mid-1990s, with revelations in 1996 and 1997 attracting widespread public scrutiny. UBS acknowledged that numerous accounts remained inactive because its policy required heirs to provide death certificates. The bank encountered considerable criticism and negative publicity in the United States, facing pressure from American lawmakers to provide restitution to Holocaust survivors filing claims.

In January 1997, Christoph Meili, a UBS night security guard, uncovered employees destroying archival documents from a subsidiary linked to Nazi Germany. This act contravened Swiss legislation safeguarding such records. UBS admitted to a "regrettable error," although an internal historian asserted that the destroyed files were unrelated to the Holocaust. Legal actions against both the archivist and Meili were eventually dropped.

Following his suspension, Meili fled to the United States, where he and his family received political asylum. In America, Meili was celebrated as a whistleblower and hero, garnering strong support from the Jewish community.

In 1997, the World Jewish Congress lawsuit against Swiss banks (WJC) pursued compensation for deposits made by Nazi victims. Negotiations involving UBS, Credit Suisse, the WJC, and U.S. officials culminated in a US$1.25 billion settlement in August 1998. This agreement coincided with UBS's merger with Swiss Bank and, combined with reputational damage from the Long Term Capital Management collapse in 1998, helped resolve these controversies.

1945–1979

Shortly after World War II concluded, UBS acquired the insolvent Zürich-based Eidgenössische Bank, pushing its assets beyond CHF1 billion and relocating its headquarters to Zürich. Although it established a New York office in 1946, UBS maintained a predominantly domestic focus. Prior to WWII, Swiss banking was dominated by Swiss Bank Corporation and Credit Suisse, with UBS trailing behind institutions such as Schweizerische Volksbank and Bank Leu. Throughout the 1950s and 1960s, UBS pursued aggressive expansion, increasing its Swiss branches from 31 to 81 by the early 1960s and acquiring several regional banks including Banque Palézieux & Cie. (1948), Volksbank Interlaken (1952), and Crédit Sierrois (1957).

UBS also secured an 80% interest in Argor SA, a Swiss precious metals refinery founded in 1951 that produced UBS-branded gold bars. The bank achieved full ownership by 1973 but divested by 1999. Argor-Heraeus remains distinguished for its proprietary kinebar holographic technology that enhances gold bar security.

By 1962, UBS's assets totaled CHF6.96 billion, briefly surpassing Swiss Bank Corporation (SBC) as Switzerland’s largest bank. Between 1962 and 1979, SBC generally held the top position except for short intervals when UBS led. After 1979, UBS maintained its status as Switzerland’s largest bank for fifteen years until Credit Suisse overtook it following acquisitions in the early 1990s.

UBS accelerated growth through acquiring Interhandel (Industrie- und Handelsbeteiligungen AG) in 1967—a prominent Swiss conglomerate with financial and industrial interests. Interhandel resolved a longstanding dispute with U.S. authorities over wartime asset confiscations by selling shares of GAF Corporation in 1965. The capital influx elevated UBS to Switzerland’s leading banking position in 1968 and bolstered its European footprint. In 1969, UBS consolidated four mortgage institutions and expanded consumer lending by acquiring Banque Orca, Abri Bank Bern, Aufina Bank, and AKO Bank.

On the international front, UBS enhanced its presence by launching a London branch in 1967—its first full overseas office—followed by opening a New York branch in 1970. It formed subsidiaries in both the UK and U.S. during the mid- to late-1970s aimed at developing underwriting capabilities for debt and equity securities. Despite these international initiatives, UBS remained more focused on domestic markets than its Swiss competitors and lagged behind them in U.S. securities operations.

1980–1998

Throughout the 1980s, the bank significantly broadened its involvement in international securities, establishing a prominent role as a leading European underwriter of Eurobonds. A notable milestone occurred in 1985 when it successfully priced a substantial bond issuance for Nestlé, Rockwell, IBM, and Mobil at rates below prevailing market levels.

In 1986, UBS expanded its footprint by acquiring Phillips & Drew, a British brokerage and asset management company founded in 1895. The initial phase of integration presented challenges, including a £15 million loss related to settlement system complications and a £48 million deficit from positions held during the October 1987 stock market crash. To stabilize Phillips & Drew, UBS committed up to £115 million between 1987 and 1988, leading to the firm's return to profitability by 1992. That same year, UBS extended its presence into West Germany through the acquisition of Deutsche Länderbank.

UBS entered the American market in 1991 by purchasing Chase Investors Management Corporation, the asset management subsidiary of Chase Manhattan Bank, which oversaw more than US$30 billion in pension funds and other assets. This entity was subsequently integrated into UBS Asset Management.

In 1993, UBS established UBS Life to venture into the life insurance industry and formed a joint partnership with Swiss Life in 1995; this arrangement involved UBS acquiring a 25% stake in Swiss Life in exchange for granting Swiss Life a 50% share in UBS Swiss Life.

During the 1990s, UBS maintained its position as Switzerland’s largest and most conservative major bank. In contrast to Swiss Bank and Credit Suisse, which aggressively pursued international trading and investment banking acquisitions, UBS concentrated on asset management and life insurance operations, deriving approximately 60% of its profits from its prudent Swiss banking activities. After failing to secure Swiss Volksbank in 1993—an acquisition won by Credit Suisse—UBS opted for smaller-scale purchases including several Swiss banks in 1994 and the Cantonal Bank of Appenzell-Ausserrhoden in 1996.

Prior to merging with Swiss Bank Corporation, UBS acquired Schröder, Münchmeyer, Hengst & Co. from Lloyds TSB in 1997 to bolster its German investment banking and private wealth management capabilities. Schröder Münchmeyer Hengst originated from the 1969 consolidation of three German banks: Schroeder Brothers & Co., Muenchmeyer & Co., and Frederick Hengst & Co.

Merger with Swiss Bank Corporation

In the mid-1990s, UBS encountered pressure from dissenting shareholders such as Martin Ebner of BK Vision, who criticized the bank’s conservative leadership style and low return on equity, advocating for significant restructuring. Amid this unrest, Credit Suisse proposed a merger with UBS in 1996 aimed at forming the world’s second-largest bank; however, UBS’s board unanimously declined the offer. Ebner supported the merger concept and spearheaded a shareholder revolt that led to replacing UBS chairman Robert Studer with Mathis Cabiallavetta—who later played a pivotal role in orchestrating the merger with Swiss Bank Corporation.

On 8 December 1997, Union Bank of Switzerland and Swiss Bank Corporation announced an all-stock merger agreement. At that time, they ranked as the second and third largest Swiss banks respectively, both trailing Credit Suisse. Negotiations had commenced several months earlier, less than one year after rejecting Credit Suisse’s proposal.

The union resulted in the formation of UBS AG, boasting total assets exceeding US$590 billion and positioning it as the world’s second-largest bank after Bank of Tokyo-Mitsubishi. Their combined asset management divisions became the largest global money manager, overseeing approximately US$910 billion in assets.

Shareholders of UBS received a 60% stake in the merged entity, while those of Swiss Bank held 40%. Mathis Cabiallavetta assumed the role of chairman, with Marcel Ospel from Swiss Bank appointed CEO. Although presented as a merger between equals, Swiss Bank personnel occupied about 80% of senior management roles. Moreover, UBS underwent more extensive staff reductions—particularly within investment banking—reflecting Swiss Bank’s superior global investment banking platform through Warburg Dillon Read, created from acquisitions including Dillon Read and S.G. Warburg. Meanwhile, UBS retained stronger retail and commercial banking operations within Switzerland alongside robust shared asset management functions.

It is widely acknowledged that substantial losses incurred by UBS on equity derivatives towards the end of 1997 hastened its acceptance of the merger terms proposed by Swiss Bank.

Long-Term Capital Management

In 1997, Union Bank of Switzerland (UBS) aimed to expand beyond its traditionally cautious approach by forming a partnership with the hedge fund Long-Term Capital Management (LTCM). LTCM rapidly became UBS's largest client, generating fees totaling US$15 million. UBS issued LTCM a seven-year European call option on one million shares, valued at approximately US$800 million, which was hedged through an $800 million interest purchase and an additional $300 million investment. After the merger, UBS's leadership was taken aback by the extent of its exposure to LTCM. When LTCM's valuation dropped in 1998, UBS found itself unable to liquidate or adequately hedge its holdings.

By November 1998, losses incurred by UBS due to LTCM had escalated to CHF790 million, eventually leading to a write-off of CHF950 million—the largest single loss resulting from LTCM’s collapse. To avert a wider financial crisis, the Federal Reserve Bank of New York coordinated a $3.625 billion rescue package involving LTCM’s principal creditors. UBS contributed $300 million toward this bailout, most of which was subsequently recovered. In the aftermath of the turmoil, UBS chairman Mathis Cabiallavetta, along with three other senior executives, stepped down.

Acquisition history

Union Bank of Switzerland’s growth was shaped by numerous mergers and acquisitions dating back to the 19th century. Significant transactions include:

References

Die Toggenburger Bank 1863-1912. 1914