UBS today detailed a catalogue of failures that contributed to a $37.4 billion (£18.8 billion) writedown, pointing the finger at its hedge fund, Dillon Read Capital Management, which was set up to stop bankers leaving.

Switzerland's largest bank published a report for shareholders, ahead of a key investor meeting on Wednesday, outlining the findings of a more detailed investigation conducted by UBS at the request of the Swiss Federal Banking Commission, the country's financial regulator.

UBS has been the worst hit of the European banks by the credit crunch, announcing $18.4 billion in writedowns for 2007 and a further $19 billion in the first quarter of 2008.

The debacle has already cost Peter Wuffli, the chief executive, his job and will see Marcel Ospel, the chairman, stand down at what is expected to be a fiery annual meeting (AGM) on Wednesday.

UBS has not yet given the Swiss banking regulator a report on how it was fixing its problems but said today that it would discuss the issue with the watchdog and communicate the solutions to shareholders in due course.

Investors in the bank will vote at the AGM on whether to support a SwFr15 billion (£7.5 billion) rights issue. Shareholders will also vote on Mr Ospel's replacement, the bank's current general counsel, Peter Kurer.

Actares, the shareholder group, said today that it would support Mr Kurer's election as chairman, although it remained sceptical about whether he was the best choice for the role.

Actares said that it would be “irresponsible” to reject Mr Kurer in view of the prolonged period of uncertainty it would create, but called on him to reform urgently the group’s corporate structure, business model, corporate culture as well as bonus and compensation schemes.

In contrast, Luqman Arnold, a former UBS employee and an activist shareholder, is opposing the appointment and is calling on the bank to launch a thorough external search for a replacement for Mr Ospel.

According to today's report, many of UBS's US sub-prime-related problems stemmed from the establishment of Dillon Read Capital Management (DRCM), the bank's hedge fund business, in 2005.

The difficulties created by DRCM were exacerbated by cheap funding and an ambitious five-year growth strategy that emphasised the importance of making profits on fixed income investments.

At the same time, UBS paid bankers under a bonus scheme that encouraged them to focus on short-term profits instead of looking at the "quality or sustainability" of the earnings they produced, the report said.

Despite these errors, the Government of Singapore Investment Corporation (GIC)reiterated today its faith in the long-term prospects of the Swiss bank. In December, the GIC said that it would give UBS an SwFr11 billion capital injection.

Tony Tan, deputy chairman of the GIC, said that the investment would give the fund "good returns when markets stabilise and economic conditions return to normal levels".

The UBS report looks only at the bank's activities up to December 31, 2007.

About 16 per cent of UBS's sub-prime losses were attributed to the trading strategies followed by DCRM, with the investment bank's collateralised debt obligation (CDO), operations contributing a further 66 per cent and foreign exchange and cash collateral trading 10 per cent.

The remainder came from other parts of the investment bank's fixed-income operations, including a proprietary trading desk that specialised in securities.

UBS admitted in the report that DRCM was set up to prevent a few key bankers from leaving the company.

This is thought to refer to John Costas, the head of UBS's investment bank at the time, and to MIke Hutchins, the global fixed-income head, an expert in creating securities from unattractive assets.

They were keen to capitalise on the boom in alternative asset management. At the time, wealthy investors were pouring cash into hedge funds — a type of business that the risk-averse bank had avoided since it made losses on the collapse of Long Term Capital Management in 1998.

Desperate to keep Mr Costas, Mr Wuffli agreed to set up DRCM and allow it to invest cash from the investment bank. DRCM hoped to raise as much as $5 billion from external investors.

Commenting on DCRM, today's report said: "The manner in which DRCM was established did not correctly weigh the strength of UBS as an organisation against the perceived importance, interests and demands of a few individuals, and allowed exceptional levels of authority within a complex and non-standard governance model."

Choosing the senior managers that made up the rest of DRCM's top team was rushed, according to the report.

UBS said: "In consequence, the DRCM business case and internal agreements and arrangements for the DRCM transaction were eventually effected with considerable speed and concluded with less opportunity for wider internal review than might otherwise have been the case."

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