Swiss Bankers over the years have built a reputation for probity, confidentiality and a conservative if not staid style for handling their clientâ€™s money. Recent events at UBS however have shattered that carefully crafted image and have lent an aura of swashbuckling to the pinstriped gnomes of Zurich.
After an utterly disastrous foray into Hedge Fund Management that culminated in the embarrassing closure of its Dillon Read Hedge Fund unit in May 2007. UBS has become a serial bleeder of red ink. Todayâ€™s Quarterly result are expected to be the 4th consecutive Quarter of Large write downs, after writing off $37 Billion in sub-prime assets in the last 3 Quarters, analysts are expecting additional write downs to bring the total to $43 Billion.
Desperate to recapitalize UBS accepted $11.5 Billion from Singaporeâ€™s Sovereign Wealth Fund and an unnamed Arab Sheik. This was done on very favorable terms for the investors, if UBS raised more money later in the year they would have their deal re-priced. When UBS subsequently was forced to go cap in hand to market again by doing a rights issue at a 30% discount to its stock price to raise an additional $15 Billion to shore up its dwindling cash-pot, this deal became very lucrative to the new investors to the detriment of existing shareholders. Not surprisingly this has led UBS shares to fall 53% this year the 4th worst performance of any financial institution in Europe.
Not content with shedding money UBS has also been losing employees almost as quickly. In addition of planned headcount reduction of 7,000 employees, UBS has also been losing entire teams from its flagship wealth management franchise to its rivals. Bank Julies Baer, Sarasin and Cie and Vestra Wealth Management have been some of the beneficiaries.
This lack of confidence has also been affecting clients; UBS is expected to report today a net loss of $4.6 Billion in client funds. This is the first such loss in 8 years. UBS the Worldâ€™s largest manger of client money with over $2 Trillion in assets must be unnerved by what, in private banking circles, is considered a lead indicator on future performance. The clients only started to shift their assets relatively recently and this may indicate that they are more unnerved by the accusations of criminality at UBS than they are about its lack of apparent investment management skills.
UBS has been sued by the Massachusetts and New York Attorney Generals who are accusing the Swiss bank of committing a “multi-billion dollar fraud” by steering broker clients into auction-rate securities that became impossible to sell once the credit market tightened. It has since had to agree to return $18 Billion in clientâ€™s money.
UBS has also been accused of helping US clients to commit tax fraud. A federal judge in Miami has authorized U.S. officials to seek information from UBS AG about U.S. taxpayers suspected of using Swiss bank accounts to evade income taxes, part of a probe that could crack open Switzerland’s tradition of bank secrecy. The order issued gives the Internal Revenue Service permission to serve a summons on UBS to obtain information about possible fraud by people whose identities are unknown. The court granted the so-called “John Doe” summons, a day after the Justice Department made what it called an unprecedented request for the records, part of an IRS investigation into services UBS provided to U.S. clients from 2000 to 2007. Nothing seems to scare Private Banking clients like a tax department fishing expedition.
Callum Roxburgh is a Wealth Manger based in Jakarta, Indonesia, who publishes a blog on Financial, Economic, and Investment News. You can see more of his articles and opinions at The Wealth Manager