UBS : another case of rogue uncontrolled trading

The $ 2.3 billion loss reported by UBS London this September on uncontrolled positions of $ 10 billion just validates the ECGS analysis.

Chief Executive of UBS, Oswald Grubel, had claimed to have put in place new risk management practices, pulled back from proprietary trading and focused on a low-risk client-driven model.

But Ethos, our Swiss ECGS partner, commented before UBS last Annual General Meeting: "Most of UBS' risk weighted assets (60%) are located in the investment bank division mainly to back fixed income trading activities. The necessary capital allocation is therefore important (57% of UBS' capital) and Ethos questions whether such trading activities are profitable in light of the new capitalization rules, the very high volatility of revenues and risk of such activities on UBS' reputation."

 

Further, in its recent answer to the EC Green Paper on Corporate Governance our ECGS network was clear about the origins of markets short-termism in its response to question 13 of the Green Paper :

 

"The most important short-term engine is likely to be the banking system as legalized in the EU and in many other countries. The short-termism of the markets is deeply linked in our opinion to the confusion of interests allowed by the universal banking license: multi-business financial groups will, in case of conflicts of business opportunities or conflicts of interests, give mechanically a priority to non-recurring transactions such as proprietary trading, brokerage or investment banking transactions./... In a way these universal banks tend to vassal their own long-term activities such as credit, deposit or even asset management for third parties, in order to protect their highly profitable short-term activities. We consider on the other hand, that the protection of the taxpayer for the banking sector is still perfectly legitimate because of its two systemic activities of deposit and credit.

 

22 Steptember 2011