Monday, April 21, 2008


First off, hindsight is 20/20, but one expects better from formerly world class institution.

The shareholder report (produced for Swiss banking regulatory agencies) discussing UBS's write-offs makes for interesting and entertaining reading.

The following (only 10 pages into the 50 page report, no less)describes a firm that simply listened to unnamed "external consultants" who recommended plowing into an already crowded trade, and chased the high returns from ABS, CDO, and any other of the alphabet soup of names that comprise levered credit and/or "fixed income" risk.

It is astonishing that no-one at this SWISS (a brand name that supposedly makes one conjure images of hyper conservative bankers wearing designer eyeglasses) institution threw the "external consultants" out of the board-room.

Here is the snippet from the report:

"At the same time, the (Investment Bank) also undertook a specific review of the Fixed Income business in conjunction with external consultants. It was recognized in 2005 that, of all the businesses conducted by the (Investment Bank), the biggest competitive gap was in Fixed Income, and that UBS's Fixed Income positioning had declined vis-a-vis leading competitors since 2002. In particular, the IB's Fixed Income, Rates & Currencies ("FIRC") revenues decreased since 2004, and accordingly, FIRC moved down in competitor league tables by revenue. According to an external consultant, the IB Fixed Income business grew its revenue at a slower rate than its peers.

The external consultant compared the gap between UBS and the composite leader (defined as top 3 in a specific product area) in various fixed income products and concluded that the (Investment Bank) had gaps in the Credit, Securitized Products and Commodities businesses, with smaller gaps in Rates and Emerging Markets.

The consultant also noted that strategic and tactical initiatives were required to address these gaps and recommended that UBS selectively invest in developing certain areas of its business to close key product gaps, including in Credit, Rates, MBS Subprime and Adjustable Rate Mortgage products, Commodities and Emerging Markets. ABS, MBS and ARS (in each case including underlying assets of Subprime nature) were specifically identified as significant revenue growth opportunities. The consultant's review did not consider the risk capacity (e.g. stress risk and market risk) associated with the recommended product expansion"

Amazing. Restraint does not get one promoted. (or share in year-end bonuses which do not have to be returned due to poor performance)

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