Taking a wild position on a market is one thing, going back for more, 10 billion dollars worth is another but to not even keep track of what is on the balance sheet simply shows a total lack of accounting procedure, risk policy and governance support. It is possible that UBS will record a net loss for 2007, although no one is really sure unbelievable that it might seem and while one perceives a bunch quant jocks with their feet on the desk and management chasing the tails, the European Central Bank is going to float 500 or so billion up for cheap grabs and that might ease the pressure some of these banks are under, certainly it will improve their liquid position at the end of the year. The ECB stated that 390 banks across the region had sought funding, so UBS is not alone.
Come on Martin, its UBS do you know how big this organisation is I hear everyone say but in reality when one of your own customers has to prop you up for capital support, it shows how fragile the institution truly is or perhaps how delicate the business model has become through a total lack of risk management and insight in the market place.
To be precise UBS announced this week that they would sell 10.8% of their investment business to the Singapore government as well as a Middle Eastern firm that UBS didn't name as is often the case with some investors.
Mr Ospel told investors during a conference call that "the bank would stick to its existing business model of running a private bank, an asset manager and an investment bank under one roof" whatever that is and was it something else before this? He also added that there was no pressure internally for him to step down, externally he didn't make a reference to.
This is not a first for the Singapore government which runs two large investment funds, GIC which has grown to about 100 billion and Temasek Holdings, which manages about the same sized investments and is run by Ho Ching, the wife of the prime minister Lee Hsien Loong. Both funds have grown over the last few years and have acquired assets in telecommunications, property, shipping, health care, shopping centres in the UK and Australia, aviation carriers and a swag of banks scattered across South East Asia that perhaps incorrectly look to these European big players as a standard for risk management. With Tamasek controlling 17% of Standard Chartered this is not a first for Singapore and in many respects the crisis in mortgage backed securities has presented an opportunity for Singapore to take a stronger foot hold overseas, one that has doubled over the last two years to 38.7 billion for GIC the cousin of Tamasek.
As the deal sits, UBS will issue 9.75 billion of convertible securities to GIC where it pays a coupon rate of 9% until the notes convert to ordinary shares two years on. What a deal for Singapore assuming of course the management of UBS do something with their risk frameworks, so all up 9% return followed by a dividend paying position. The relationship however is a little more symbiotic than may first appear as UBS is also a financial advisor to the Singapore Government on assisting Singapore become a major financial hub. Anyway, if you hang around till the middle of February, there may be more to come from UBS as it plans to sell treasury shares and replace its 2007 cash dividend with stock boosting capital by a further 6.4 billion francs.
