UBS trading loss seen as institutional failure

AsianInvestor’s readers – institutional investors, distributors, fund managers and service providers – have expressed collective conviction about where the blame lies for UBS’s recent $2.3 billion Delta One trading loss: squarely at the door of the Swiss institution itself.

In our latest online poll, we sought to test views on whether this was an isolated incident caused by a rogue trader, an in-house failure that UBS needs to address, or a mishap that has wider implications for the entire industry.

And in a strong show of consensus, half (49%) of almost 200 respondents voted that the problem lies in the failure of UBS’s own risk systems.

This is a worrying outcome for UBS as a reflection of common opinion, coming as it does as the bank strives to cut annual costs by $2.5 billion to make up for losses it suffered during the 2008 financial crisis.

Lest we forget – and incidents such as this only serve as a reminder – the bank blew a $50 billion hole in its balance sheet via bad bets on sub-prime mortgage securities.

Clearly UBS was not alone in such ill-advised exposures. And for every Kweku Adoboli, the UBS Delta One trader charged with fraud and false accounting, there will always be a Jerome Kerviel or a Nick Leeson.

But it is further loss of confidence in its brand that is of greatest concern for the bank, more so even than the financial hit which could lead it to report a loss for the third quarter.

Its share price has sunk over the past five years from a high of around $58 to a low of $10.63 on September 22 this year.

Urgent action was needed and group CEO Oswald Grubel fell on his sword this past week. A fair question is: should Maureen Miskovic, who joined UBS as its chief risk officer this year from State Street (and formerly Lehman Brothers), also take responsibility?

UBS will likely now speed up efforts to restructure its investment banking business. Interestingly, more respondents to our poll (17%) believe all integrated banks should be made to separate their investment banking business, not just UBS (6%).

Put another way, however, the great majority of our readers believe the scandal is about UBS itself, not about the industry or the universal banking model. Fewer than one in five (17% of respondents) believe greater regulation of proprietary trading is essential in response.