USB – Big Bank In Trouble Again

Oct. 18, 2011 - PRLog -- Alleged rogue trader Kweku Adoboli being taken into custody from his home in Bethnal Green was the beginning of a drama unfolding at UBS's London headquarters.  The timing could not have been worst for a management who have been striving to restore the bank's reputation.
The Swiss Bank was hit by the credit crunch and now Chief executive Oswald Grübel is again pleading with investors to stick with the bank.  During the credit crunch, UBS was left reeling. It was bailed out by the Swiss government after being forced to write down $50bn (£31bn) linked to US mortgage-backed securities in 2008. It faced charges in the same year of providing services to American clients seeking to evade taxes and was fined nearly $800m by the US authorities in a long, tortuous case that heaped shame on the Swiss financiers.
Recently, it seemed UBS was putting many of its problems behind it as it returned to profitability under Grübel but now it faces more turmoil than anyone could have imagined, after the disclosure that a rogue trading scandal has cost the bank about $2bn and Adoboli's charge sheet alleges the misdemeanours might stretch back to 2008.
Dr Pete Hahn says the UBS incident raises worrying questions over the reliability of financial information across the board.

“UBS’ sad news about its loss and apparent control failure has been a godsend for re-igniting attention on banking reform. However, this misfortune’s greater and largely overlooked message is about the challenge of understanding risk information today and particularly bank balance sheets.  

“It wasn’t that long ago that triple-A rated sub-prime mortgage securities were ‘rock-solid’, sovereign debt was not only loss-proof but provided liquidity and commercial real estate loans were ‘secured’ or backed by ‘real assets’.

“Much of today’s debate about splitting this and that and applying more rules misses the point that the information we are using may be becoming ever more unreliable. Think this is all about investment banking?  How about all those US mortgage loans on homes which had grossly overstated professional valuations just before the bust?  How feasible is it that ‘new retail’ banks won’t own government securities?

“Faster communications, faster perceptions of changing risks, faster money movements, increased global interconnectivity, political weakness and volatile markets all add up to big questions on the reliability of financial information across the board.  Not very encouraging for investing in banks.”

To speak to Dr Hahn please contact Chris Johnson, Press Officer at Cass Business School.  Dr Peter Hahn teaches finance, corporate finance, and banking subjects to  undergraduate (http://www.cass.city.ac.uk/courses/undergraduate/courses/...) MBAs, and executives.

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Cass Business School is one of Europe’s leading providers of business and management education, consultancy and research.