UBS - Big Losses, But Big Profits

What is the world coming too? Just when you think you know someone they go and surprise you with something unexpected. Those that read this blog know that we are huge fans of UBS Bank, our dealings with them are always professional and the staff in their private banking departments are different class. OK, so they may be rubbish at naming funds, trying to put as many words and numbers into the titles as possible, but generally they are the business.

It may have been a little romantic of us then to assume that the Swiss philosophy of diversity and low risk would shield our friends from the ravages of the sub prime market, however, this turns out not to be the case.

In a trading update, as you probably know by now, UBS said it will record a loss of up to SFr800m (£340mn) for the third quarter thanks to losses on investments in the sub-prime mortgage market.

It also said that it will be shedding about 1500 employees by the end of the year, the first to go is Huw Jenkins the chairman and chief exec with Marcel Rohner taking over "for the foreseeable future". Huw Jenkins will become an 'advisor' to Mr Rohner however.

The good news is that UBS, more than most, is equipped to ride out this particular storm as it is still projected to make SFr10bn in the first nine months of the year.

Commenting on the situation the new chief said that UBS had been hit harder than its rivals by the credit crunch "because we are clearly overweight in the US sub-prime market, with much higher volumes in a market which has, for many years, had low volatility but which has become more of a credit risk."

They still own about $19bn of sub prime assets but these are not high risk holdings because 90pc were AAA rated, and 80pc had a weighted average life of less than three years.

The whole situation begs the question of what is happening out there to other banks. Stephen Pope, analyst at Cantor Fitzgerald, called for UBS to open its books: "My view is that in these stressed times it would be appropriate for UBS...and perhaps all the banks to make a clean breast of their exposure.

"So I call on all banks to get the dirty laundry out and into public view so that we can try and draw a line under this issue, this is a time for clarity not secrecy."

My experience of all things Swiss, especially at UBS, is that covering up losses is not really a situation you will find here, but in these volatile times can we say this for others in the banking sector?

Commentators have made suggestions that UBS should not just dismiss the sub prime assets that they still hold and give the market a better idea of the exposure that could be created here. I would have thought, however, that if UBS do think that there are further losses, the new chief would have got all this out in the open and made a clean start, wouldn't you?

Personally, I think that UBS have just been the first to really tell it like it is and thrown everything but the kitchen sink in, it will be interesting to see what the other big banks do now.