UBS Staffed by Idiots

Perhaps the aristocratic heritage of Swiss banking has generated their version of Charles II of Spain. That's the poor, misshapen sap to the right with only 2 great-great-great-great grandparents, a family tree that converges.

I wrote a rather fawning post complimenting UBS on their candor and perception when the wrote up their 2008 debacle. They seemed to have identified key errors in judgment, and were refreshingly detailed in the origin of their write-down (I never saw anything similar among US banks). Everyone slips up now and then, and so I figured that was a sign of a healthy organization that merely made a singular mistake.

However, 2 strikes and you are out. Reading snippets about their $2B loss via some low-level trader makes me think the bank is thoroughly incompetent. This 'Delta One' desk had a $7B rogue trader loss only a couple years ago, so they should have been keenly aware of the potential risks (this was at Soc Gen--the businesses have the same Delta One name for some reason). To generate that kind of loss implies several levels of fail within risk management, the trading desk itself, and the back office. It's easy to think a couple people screwed up, but this must have involved at least a dozen important people who apparently got paid to surf the web all day.

When I worked for a large bank there were many senior executives who were good at playing the game, but ultimately ignorant of how banks made money. These include those who were good at glad-handling the various political bodies that were essential to many of our strategic efforts, such as what businesses we could enter, and keeping competitors out under the pretext of protecting the consumer. Unfortunately, as $115MM Citigroup executive Bob Rubin showed, such skill doesn't translate in an ability or even interest in nitty gritty issues like what's on the balance sheet. A smart banker avoids positions unrelated to the core business of originating and distributing loans and deposits and other financial instruments. For example, it does not make sense to trade corn futures if you have no business with futures exchanges or corn growers.

I used to think the Swiss financial types were smart, with their solid currency and all. Perhaps they merely avoided both World Wars, which could have been due to savvy strategy, but also chance. They seem to have good general competence (thus the nice mea culpa on their 2008 write-down), but are too aloof or naive for the realities of modern banking. They should stick to chocolate.