11/8/12

One common criticism I hear on the street is UBS, the U've Been Sacked bank, or Ultra Bullshit Shit bank has a poor reputation. Either through routinely failing institutional clients by wiring money incorrectly to a counter-party while they're in the middle of a lawsuit. Or finding their contracts don't mean very much when the words 'capped-fees' is just there to charm, it's misnomer in Swiss-German that means it's uncapped; a kind of screw you get out clause..

But the bank is also known for the billions they've put into R&D in dark pools, brokerage, the sheer numbers of starts-up in their rather activist, but also interesting, long-term investment strategy.

Towards this direction they're now moving from investment bank to brokerage bank.

Yet this strategy is where it's gone all wrong. Now whenever I read of a change of tack by the bank, saying they're going revamp 'back to Warburg & Co.'s roots', or propaganda citing a CEO who believes it can return to the status of a 'classic private bank,' I wonder about the sanity of the world (and the Financial Times).

Monkeys on this forum have lamented UBS' failed attempt in having the largest investment bank in the world, going on to castigate them more for every failure, fingering the blame on their poor governance, rather poisonous brand-name, or any other tid-bit that seems to get the fuzz-box in a financial blogger's blood flowing.

Yet the problem is this: UBS' investment bank was the largest in the world. When it bought Warburg & Co., after of course Siegmund Warburg the perennial founder had already conked out , the problem has only become apparent that with his non-existent advice came an impossible ordeal to integrate the seething mass of different, conflicting entities, into one integrated unit; what came was a rearrangement reminiscent of a bad modern art fresco containing monopoly pieces, all trying unsuccessfully to fit into the brasses' wider, warped goals.

So goes the story...

UBS bought the largest stockbroker in America, Paine Webber.

One of the largest asset management firms, Brinson Partners.

One of the largest American investment banks, Dillion, Read & Co.

One of the largest market makers in the world was bought, O'Connor & Associates.

One of the largest non-Swiss banks in Europe, Schroder, Munchmeyer, Hengst & Co.

To name a few. It was like RBS, without the ridiculous non-stop incompetence from Fred Godwin Deloitte-trained, Cameron Eton-educated, intimidating but ultimately barking mad Glaswegian-bred bankers.

But UBS' insatiable appetite for non-stop buying sprees, in contrast, was entirely a blessing in disguise. It was lucky that's it's has the cumbersome constitution of a sloth in its litany of large acquisition throughout the 2000s. Precisely because without the good management of Old Warburg & Co's balance sheet, it could never buy too much or too quickly, or else they would have sunk their own battleship.

The turnover at UBS is wicked as well. Few employees from the original acquisitions in the 1990s survive. Most of the CEOs who were bought up leapt off on their golden parachutes and continuity in all tiers been a problem since. We can expect that an organization of UBS' size, 100,000 or so employed has turnover of at least a million in the last couple decades.

Perhaps the trend is that the bank is not too-big to fail, it's not due to the lack of capital (which is ample considering) but the fact that either in its acquisitions in Hamburg, in London, or New York, it says something to the fact that all of this is run out of Switzerland of all places.

The top brass of the company are either Swiss-German or German (slight difference in their condescending use of the language). It's like Deutsche Bank, you know the bank which has consistently denied its bread-winning Investment Bank CEO Anshu Jain the opportunity to co-run the organization of a whole because he's both Indian and a non-German speaker.

But with so many branches, assets approaching the annual GDP of developed countries, the imperial business is over. Like Sony, where everything important happens in Silicon Valley, from design to implementation of its video games business, while all of the decisions made in Tokyo, there comes the firm's inefficiencies being built into the system.

Sadly for UBS, these inefficiencies have sunk its ability to simply compete, not just perform, but survive in the global market space where any successful person, with the proper command of English, must have just the same kind of chance to become CEO or Chairman than those who happened by accident of birth to be from the same place as their predecessors.

Comments (23)

11/6/12

Interesting, thank you for this post.

11/6/12

You sure? You're not high are you?

11/6/12

...UBS sucks

11/8/12

While I agree that UBS does indeed suck, I think they have the strongest government put in the world and therefore will not, and cannot, die.

11/8/12
Edmundo Braverman:

While I agree that UBS does indeed suck, I think they have the strongest government put in the world and therefore will not, and cannot, die.

Agree, think of Citi but with a stronger national "interest". Major red-flags include
- A restructuring mess, unclear goals thus strategy and lost in their own structures.
- Talent, perhaps one of the truly differentiatiors in this industry is leaving or being fired
- Image, certainly stained, and infrastructure risking left unattended.

Also agree with OP, as acquisitions (particularly in IB) have historically been far from successful, it is however an industry-wide phenomenon with rare exceptions.

But Edmundo is right and in addition to the government put (in a certain shape/form/reach -i.e. PB and local retail & corporate banking, hence not a blanket guarantee and limited to the government capacity), UBS still has a very impressive access to key decision makers in the corporate world, many governments and in the private wealth area (UHNWI, entrepreneurs), which can be a good starting point, if they get a transition right (to whatever form they mean by this).

Toil, blood and tear ahead, with uncertain future shape/form.
In a nutshell: granted, many units/legal entities/markets will be closed, but to be speaking of dying... I wouldn't be so sure.

Edit: changed "pride" for "interest", not very convenient to speak about pride at current times, but certainly it is central to Switzerland's economy

11/8/12
Edmundo Braverman:

While I agree that UBS does indeed suck, I think they have the strongest government put in the world and therefore will not, and cannot, die.

This, there's no way the SNB would let UBS die.

The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.
11/8/12

People have been doom-saying about UBS forever now. Not the best bank, but they still have the backing of the Swiss government and a huge infrastructure.

Reality hits you hard, bro...

11/8/12

Good read, but you could've proof read it... Some sentences don't even make sense.

11/8/12

They are just going to sell off assets until they can find the right mix of products and service to "succeed."

11/8/12

I agree with some of your points but other parts had me scratching my head. Also, it's a huge exaggeration to say that the bank will die.

This is like saying Walmart is going to die because its "tires/autos" section isn't doing well and they're going to sell it. UBS has many verticals that are doing well and even better than most of its peers. PWM, AM, brokerage, research, etc.

11/8/12

UBS ain't going anywhere as a whole. It is the BofA of Switzerland...the government has an implied interest to see it alive. The Investment Bank however (which has been vile by many) will be sold at some point; or worst entirely dissolved

11/8/12

The firm is certainly wracked with pain and under-performance in several critical areas. It isn't going to fold, however. For one, the Swiss government is incredibly unlikely to ever allow complete failure. Secondly, several of the firm's businesses are not only succeeding but are strongly resilient. I view their best and most likely play to be a shuttering of the institutional securities business and a more complete move into the wealth and asset management business.

Much of their top talent on the banking side has fled or been poached away to rival firms. Their trading revenues have taken a massive hit lately, not only thanks to last year's rogue trader incident but to poor performance in aggregate. They already axed the 1st year analyst class this summer (literally the day before bonuses were due) and brought back half as many summers as usual. I think this is their new direction, and I remember from my time recruiting hearing several of their executives allude to a significantly ramped-up focus on GWM and AM as business lines over the past 3-5 years.

Long story short: failing altogether, no .. refocusing, absolutely (and with good reason).

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11/8/12

There are plenty of firms with short puts because of government backstopping. I mean, historically Baring's Bank was backed by the British government to the hilt too... but I'm not arguing it will simply implode but will become a weaker and weaker competitor as some goes on.

11/8/12
G.M.Trevelyan:

There are plenty of firms with short puts because of government backstopping. I mean, historically Baring's Bank was backed by the British government to the hilt too... but I'm not arguing it will simply implode but will become a weaker and weaker competitor as some goes on.

In traditional IBanking, sure. But in AM, PWM it should continue to get stronger

11/8/12

You've obviously never experienced their AM or PWM services... most of the latter are on contracts and will leave asap and set up their own firms or go over to MSSB. Specifically, I'm referring to the MDs who have a strong enough client list that they can leave. Client unhappiness is highest in the US and South America, lowest in East Asia. This is their only avenue. Alas, their service there is shit too (both returns and customer experience).

11/8/12
G.M.Trevelyan:

You've obviously never experienced their AM or PWM services... most of the latter are on contracts and will leave asap and set up their own firms or go over to MSSB. Specifically, I'm referring to the MDs who have a strong enough client list that they can leave. Client unhappiness is highest in the US and South America, lowest in East Asia. This is their only avenue. Alas, their service there is shit too (both returns and customer experience).

Go over to MSSB? No way. People are leaving MS daily for UBS and ML. The merger of MS and SB has really pissed off a lot of brokers and top producers are leaving

11/8/12

Very interesting article, pretty well thought out aside from the few errors. I would like to see UBS PWM/AM cede from the traditional M&A. It is a shame that one of the stronger money managers on the street being brought down by the numbnuts on the trading desks.

I am not sure that many will go to MSSB, as whole floors of their NY branch just moved from there. I do agree with Trevelyan on that once their contracts expire, I would not be shocked to see many of the larger teams jump ship.

"Whenever you feel like criticizing any one, just remember that all the people in this world haven't had the advantages that you've had."
-F. Scott Fitzgerald

11/8/12

3rd quarter net new money of CHF 12 billion!!! I will let that speak for itself. Yes some part of it may die, but the overall collapse? Even without any intervention from the swiss government I highly doubt they will totally go under.

11/8/12

UBS is going in a good direction I would say - trim the fat, get rid of the lower performing talent and become a mean & lean bulge bracket focused on areas which it could be good in - wealth management, advisory, DCM, ECM, equities, etc. Now if they could figure out a way to attract top talent...

11/9/12
Dunkin Donuts Banker:

UBS is going in a good direction I would say - trim the fat, get rid of the lower performing talent and become a mean & lean bulge bracket focused on areas which it could be good in - wealth management, advisory, DCM, ECM, equities, etc. Now if they could figure out a way to attract top talent...

Never

11/16/12

Good post. UBS remains a disaster - despite recent efforts to return to the core business of lending PB/PWM clients their own money. The issue really is an integration and risk management one more than anything else though. There are a lot of very smart people at the firm (or at least were) picked up from acquisitions and recruiting in the glory days (when UBS was considered a legitimate global competitor). However, the problem is that the firm doesn't have (and never built) the tools or culture to properly measure, understand, price and report on risk. As an example it takes 5 reports from separate systems and countless different metrics to get the firm exposure to a specific client - so you have to climb several mountains to pick a bunch of apples, oranges and bananas, then compare them and hope they actually taste similar. Further, Switzerland is not paying attention to real risk - ie analyzing the economic value of the firm under various macro scenarios , constantly benchmarking risk to market, etc... And when that is suggested, someone shoots it down because of the monumenal nature of the problem. Instead management simply focuses on high level income statement and balance sheet data and tries to leave risk decisioning and monitoring to traders or divisional risk personnel who are really either incented to just originate and not manage risk or who are told that risk is bad, and not to take any. This is in stark contrast to Goldman for example, where quants and risk personnel have separate reporting chains, but are embedded on trading desks together and required to work together to get deals done. Additionally, trades at GS must be booked in a singe system with an approved model formulated by the desk, quants and approved by senior management. This system means that everyone prices risk the same way (ie risk management and trafding agree on how to price and manage products) and also that management can quickly aggregate risk across the firm and run scenario analysis (which they do). Further GS manages risk for the whole firm at a very senior level - a senior partner committee makes decisions on what kind of risk the firm will take, and exactly what the limits of that appetite are - then they monitor those risks closely; good behavior is further enforced by making everyone mark risk to market constantly and drilling people if they screw up.

UBS could be a great shop - but they have to want to really understand, take and manage risk on an onging basus and not just try to play the relationship / product origination game. I wish Switzerland would take a hint that it's not that risk taking is a bad business, it just requires work.

11/17/12
4/22/13
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