Posted on 04/21/2008 7:30:50 AM PDT by TigerLikesRooster
UBS details subprime losses
By Haig Simonian
Published: April 21 2008 07:21 | Last updated: April 21 2008 13:56
UBS on Monday revealed that its massive losses in securities related to US residential mortgages stemmed largely from the fact that three separate parts of the group had amassed large positions, without sounding the Swiss bank’s once-vaunted alarm bells for risk.
In a report to shareholders two days ahead of its annual meeting, the biggest European casualty of the subprime crisis explains how its elaborate risk detection procedures failed to detect that UBS had built up more than $70bn in potentially dangerous positions.
In the report, UBS identifies – and blames – the crisis on the fact that three separate businesses built up large positions. The first was Dillon Read Capital Management, the now closed internal hedge fund. But large positions were also held by the rates division of the group’s big investment bank, which had so-called “warehouse” stocks of collateralised debt obligations as well as higher rated “super senior” CDOs on its CDO desk. Finally, UBS also built up positions through the treasury operations of the investment bank, which held a portfolio of asset backed securities in its trading unit.
Publication of the report followed pressure from Swiss activist investors earlier this year. The activists had threatened to turn to the courts to oblige the bank to be more transparent about the causes of its subprime crisis if UBS failed to do so willingly.
In a compromise, Ethos, the leading activist, said it would drop its threat of legal action after the bank agreed to make available to shareholders large parts of a report that had been requested by the Swiss Federal Banking Commission (EBK), the bank’s lead regulator.
To ensure no further spats with shareholders over the veracity of the findings or the degree of transparency, the bank appointed auditors KPMG to ensure the information conveyed to investors fairly summarised the much weightier documentation supplied to the EBK.
“In their [KPMG] professional judgement, the shareholder report contains a reasonable summary of the information that UBS included in their report to the EBK”, the bank said.
The report only covers the origins of the crisis and period to the end of last year, during which UBS was forced to write down about $17bn on its US holdings. Since then, the bank’s write-downs have swollen to more than $34bn, prompting a forecast for a heavy first-quarter loss this year, on top of the SFr4.4bn ($4.3bn, €2.7bn) lost in 2007.
Shares in UBS were SFr0.38 lower at SFr35.72 in afternoon Zurich trading.
Ping!
Either way, all I'm seeing is incompetence.
Either way, all I'm seeing is incompetence.
lol
We owe a big thanks to the Europeans for absorbing so much of the subprime and real estate losses. It looks like the US banks avoided a lot of the fallout by not investing in these mortgages, for the most part, while the Europeans gobbled them up like Thanksgiving Dinner.
I think this is the most successful case of outsourcing by U.S.:-)
Thanks for the ping.
I'm at a loss to understand how the Europeons got into this mess. There are all kinds of "Ex-Spurts" like moi who can unbind a tranche and do a exam on a sample to see just what's in 'there'.
But in view of the Mining Stocks we suckered er... sold them in the 19th Century, it appears history has repeated itself.
Wouldn’t it be interesting if our economy goes into the tank and most of the investors nailed by it are the Europeans? ;)
Transatlantic alliance lives on in an unexpected way.
No surprise here. I imagine the sub-prime stuff was sold to ignorant ‘investors’ to free up hundreds of billions so the commodities futures market could be manipulated for food and energy.
Good cold-to-the-point question.
Please, nobody shoot me, I'm going to throw out some points, and I know within the FReepdom there's a number of different view points, so ....
First, let's look at the 'market'. There are huge amounts of money pouring in looking for a home. Just the California school teachers retirement system requires a couple of battalions of brokers - advisers and such. Then add in the various states, counties (full disclosure: I'm getting a slice too) special districts, 401's - etc and so forth.
This money, particularly from guberment entities, comes in even when the economy slows - no one now living has ever seen a .gov entity stop spending and lay off employees on a large scale.
So that money had to go sum whare =;^)
IIRC there was a recent issue about the veracity of KPMG's professional judgment, and the extent to which it tends to point in the direction of the money blowing in.
One 'private organization' I'm negotiating with will be concerned with divvying up the assets of failed entities if/when the SHTF, RE: sub primes.
There's going to be claims in series of multitudes of the ability to pay, for all the companies that anointed these SFIV's. (Squirrelly Financial Investment Vehicles)
*So much so that I've given trying to show the Free Trade crowd the fallacy of their thinking. There's a free and complete education right here on FR ;^)
Their banks did the same stupid things that ours did, loaned money to immigrants who did not have any assets.
There are budget cuts in gubmint programs all the time. They just don’t make headlines.
There are huge pools of money in the world — but Wall Street is not the only place to invest them. Money sloshes around the globe at incredible speed looking for the best return.
US banks could never have pawned off these worthless investments on the Europeans if it was not for the fraudulent AAA credit ratings they received. Nobody would have bought this crap if it was rated like the toxic waste it is. Of course, the greed of European banks played into this fraudulent foisting of toxic securities. But still, the AAA rating is what made it flow so smoothly and so far.
The AAA rating would probably have been accurate if the real estate market had not crashed. And you did not need to be a ratings agency to see that was going to happen. I think that the European banks must not have looser investment restrictions than US banks have. The US banks have comparatively lower exposure to this than the Europeans have, which is remarkable considering they are on the other side of the pond.
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