Top Firm Blames Woes On A Few Prop Traders

Kid Pointing

It looks like executives are playing the 'blame game' over at UBS. The $10bn of additional write-downs announced this week seem to have top bosses running for cover, hoping that they can avoid being fingered for the mess.

Financial News reports that some unnamed members of the UBS 'management team' have said that the bank's write-down problems are down to a 'small number' of prop traders in the investment bank. UBS chairman Marcel Ospel has said that 'the (mortgage-backed) positions were created in the interests of client business, but were held in pursuit of proprietary profit. (The people concerned, and their supervisors, failed to recognise properly the size and changing nature of the positions that were being established). And, risk control and finance had the numbers, but failed to realise in time what they truly meant'.

In the meantime, many are wondering what's in store for UBS Investment Bank. Although UBS CEO Marcel Rohner recently said that 'we have the investment bank properly positioned for future success (and) we are well on track', others are not too sure. Reuters quotes MF Global analyst Simon Maughan, who's said 'it will be investment banking with your hands tied behind your back, because you are operating with 50% more capital than the opposition and you are not allowed to do prop trading'. And some investors still ponder on the value the investment bank brings to the UBS share price anyway. Dirk Becker from Kepler Securities said that 'the reason why people own shares is not the investment bank and its prop trading - it's the private banking....Investment banking is a business which gets low share valuation, and blows up regularly - as you can see'.

Finally, as we head towards year-end, UBS bosses are only too aware that shareholders might be upset if investment bankers walked off with big bonuses at a time when the bank is going through tough times. Rohner has acknowledged that such issues cause 'tension', but said that 'we're confident that we can manage the situation successfully and maintain our key staff'. (Let's hope that executives 'manage the situation' better than they did mortgage-backed securities).

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