UBS report on writedowns shows how not to run a bank
ZURICH (Reuters) - Swiss bank UBS AG released on Monday its 'Shareholder Report on UBS Writedowns', a document that might be better named 'How Not to Run a Bank'.
The report is part of a forensic exercise ordered by Swiss banking regulator EBK in the wake of UBS' $37 billion in writedowns on the subprime crisis -- the biggest by any bank.
What it reveals is widespread failure of some of the most basic controls, affecting numerous levels of management and in numerous departments, as UBS pursued a breakneck expansion plan into investment banking in breach of clear warning signs.
The language used pulls no punches, listing errors and weaknesses one by one, and offering the following self-indictments:
--"Absence of risk management"
--"Fragmented approval structure"
--"Potential structuring/trading conflict"
--"Lack of reaction to changing market"
--"Lack of monitoring/visibility"
"There are some damning criticisms about UBS management," wrote Helvea analyst Peter Thorne in a note to clients, drawing particular attention to parts that talked of revenue maximization regardless of risk.
The conclusion most easily drawn from the complicated and highly technical report is that UBS needs to overhaul its risk management and operating culture from top to bottom.
The report also underscores the need for stricter banking regulation where the risks to individual investors or even the entire economy so disproportionately outweigh potential rewards for a handful of bankers and proprietary traders.
UBS is the world's largest wealth manager, charged with protecting the fortunes of rich people in good times and bad.
IMMUNE
Analysts said some of the most disturbing passages relate to UBS' apparent belief then that it was immune to the same problems that were facing the broader market. Continued...
