UBS Report Details How Not to Run a Bank
ROBERT SIEGEL, Host:
We've come across a remarkable document. The Swiss banking giant UBS has created a seemingly comprehensive description of everything it's done wrong over the last few years. It spells out in detail exactly how it managed to lose tens of billions of dollars related to subprime losses. Reuters jokes that the report could be called how not to run a bank.
Well, NPR's Adam Davidson has been covering UBS and carefully reading this report.
ADAM DAVIDSON: Hi, Robert.
SIEGEL: Tell us first a little bit about UBS and the significance of this report.
DAVIDSON: Well, UBS is second biggest bank in Europe. It's a major global bank. They have offices all over the world. They're probably best known for managing the wealth of very wealthy Europeans. But as the report tells us, over the last few years, they've tried to become a bigger global player in lots and lots of areas. And, in fact, it was that ambition to not just be a boutique bank for the rich but to become a real global investment bank that got them into so much trouble.
SIEGEL: This report, this 50-page document, was actually required, I gather, of UBS by the Swiss banking authorities, and it's a very significant document.
DAVIDSON: This is a big, big deal. It's a big deal for UBS, certainly, because they were one of the banks that lost the most in this whole subprime financial crisis. And they were also one of the banks who, until recently, was in the most denial. It was saying, oh, we didn't do anything wrong. It's just the market turned against us. This report definitively says that is not the case, that they did things wrong. Basically, what the report says, in 2005, the head of UBS decided: I really want to become a major player. I want to make more money. I want to expand our business lines into the kinds of things that New York Wall Street banks tend to do. That was a very aggressive push. And for the next couple years, they made a lot money. But to grow so fast, they threw out a lot of the basic principles of banking risk management.
SIEGEL: And we should put out here, this isn't just your characterization. This is what they say about themselves.
DAVIDSON: This is what they say. The exact phrases are things like absence of risk management, lack of reaction to a changing market, lack of visibility. They are very upfront about this. In fact, this report says the bank has to completely start from scratch and build a brand new risk management structure, if it is to succeed in the future.
SIEGEL: Which do you think is the more likely reaction to this report? Do you think people will say, in the financial world, UBS knows what went wrong under its own roof, so clearly they'll be better now? Or UBS has so luridly detailed what went wrong, I'd think twice before I invest there?
DAVIDSON: This is classic crisis management, and very savvy crisis management. This is only step one. They are saying, finally, we admit we were wrong. We are naked before you. Here are all of our flaws. The next step, which they call for in the report, is a rebuilding of their credibility. That's going to take a while. There's going to be a lot of very skeptical investors looking very carefully at that, and they really have to come through. This is a positive step, but the hard work is still way in the future.
SIEGEL: Okay. NPR's Adam Davidson. Thank you, Adam.
DAVIDSON: Thank you, Robert.