UBS
What is it?
UBS is a very venerable Swiss bank, with a bloodline which goes all the way back to 1747 when one of its ancestors was conceived in a small town in a pretty mountainous valley. The UBS of today was formed in 1998 through the merger of the Union Bank of Switzerland and the Swiss Bank Corporation.
Best known for its global private banking/wealth management division, UBS is also a big force in international investment banking, and has a particularly strong equities franchise.
What's it got to do with the financial crisis?
After Bear Stearns went under and before Lehman Brothers collapsed and Merrill Lynch merged with Bank of America, UBS looked for a moment like one of the banks that had fared worst from the credit crunch.
In August 2008, it had made $42bn of writedowns, only marginally behind Citigroup at $47bn and Merrill Lynch at $46bn. The writedowns effectively wiped out all the profits made by UBS in the previous four years. Unsurprisingly, the share price took a beating: between January 2007 and September 2008, the bank's share price went from around CHF80 to around CHF21.
UBS's big problem was that it tried to expand beyond its core investment banking business of equities and into fixed income (and structured credit in particular) at precisely the wrong time. From 2005 onwards, it structured an increasing number of CDOs based on mortgage backed securities, and kept what it thought were the least risky elements on its own books. It was these elements which contributed to its huge writedowns.
Stung by these huge writedowns and by the fact that spooked private banking customers started putting their cash elsewhere, UBS has been forced to act. It's promised to cut back on risky activities like proprietary trading (trading with its own money), and to focus more heavily on its core private banking and wealth management business. It's also separating out its investment banking business with a possible view to selling it to someone else.
Last updated on 26 September 2008.
