It’s been fascinating to watch the rollercoaster of the finance industry over the past two years, with one or two banks illustrating the issues in the market well. But no bank can provide a better testament to the market’s ups and downs than the Swiss Bank UBS or, as most media reports talk about them, the ‘troubled Swiss bank’ with the largest losses from the credit crisis of all the banks in Europe.
Sure enough with $57.3 billion of losses declared to date, it’s not a good picture.
And, sure enough, with the loss of two Chief Executives (Peter Wuffli, June 2007 and Marcel Rohner in February 2009) and two Chairmen (Marcel Ospel in April 2008 and Peter Kurer in March 2009), it’s not a good picture.
And, sure enough, with an exodus of key investment banking talent, it’s not a good picture.
And, sure enough, with $171 billion of customer depostis withdrawn between April 2008 and October 2009, and a further $50 bilion in the last quarter alone, it’s not a good picture.
And with $38.7 billion of state aid, in the form of a TARP-style bailout from the Swiss Government, it’s not a good picture.
And with the US authorities beating up the Swiss government over UBS
being used as a tax haven and asking for details of all of their
American customers accounts and dealings, it’s not a good picture.
And with a share price that has bottomed out about the level of Paris Hilton’s underwear, it’s not a good picture.
The stock has fallen 6.5 percent in Swiss trading since the end of 2008 and traded at 1.24 times book value at the close on Feb. 5, about half the average of 2.56 times since 1997. Credit Suisse stock rose 55 percent in the same period and traded at 1.35 times book value, compared with an average of 1.74 times since 1990, Bloomberg data show.
I could go on, but with 18,500 jobs cut and eleven new management members on the board, the bank is trying to look forward rather than backwards.
And so they should as the new CEO, Oswald “Ossie” Gruebel, seems eminently sensible.
A mature 66-years of age, Herr Gruebel joined this sick dog of a bank a year ago and reported their first profit in seven quarters this morning:
UBS made a pre-tax profit of 1.2bn Swiss francs ($1.1bn; £722.9m) in the three months to 31 December. This compares with a loss of 9.58bn francs in the same period in 2008. The turnaround in the final three months of the year helped the bank to cut its annual net loss to 2.7bn Swiss francs last year (compared to 21.3 billion a year before). The bank's profit in the final quarter of 2009, which was much bigger than analysts had expected, was partly down to a tax credit worth 480m francs.
This is good news and perhaps signals there is life in the old dog yet (both of them!).
In a candid interview with Euromoney this month, Ossie makes some interesting statements.
Here’s a few of them:
"When I was at Credit Suisse, outsiders were forever telling me what a great bank UBS was and what a rotten bank Credit Suisse was. Now I am at UBS, they are telling me the reverse."
Oswald was at Credit Suisse for 37 years and took over as sole CEO in 2004. In the three years after he took over, Gruebel doubled Credit Suisse’s profit and share price. He ordered the bank to reduce its holdings in US subprime mortgage bonds in 2006 (UBS was still buying them) and told his clients to pull out of Bernie Madoff's funds after meeting him in 2000.
No wonder UBS wanted him, although they may not appreciate some of his comments:
"What happened here had nothing to do with risk management. It was down to sheer stupidity."
"If you ask me what most surprised me when I came here, it was how little integrated UBS was. It had the image of being integrated around the one brand, but internally everyone pretty much did their own thing."
"I talk to a lot of clients who want to know what is going on at the bank and always one of their key concerns is that they want to see us turning profitable again. No one likes a bank that’s losing money."
Now it’s profitable, that’s different then (even though the US tax investigations aren’t helping).
All in all, well worth the price of this month’s issue of Euromoney, particularly when you get little nuggets like this one:
"We are now giving private clients technology so that they can almost construct their own products. In equity or FX, for example, they can look at where markets and instruments are, then at where the forwards and other related derivatives are, the strike prices, the implied yields and then customize their own exposures. A few years ago, the technology to do all that simply didn’t exist."
Meanwhile, the turnaround king’s story appears to be working with Eric Bendahan, who manages Banque Syz’s €1.8 billion Oyster European Opportunities Fund, saying to Business Week: “UBS was a catastrophe but if things get back to normal, the potential is colossal, while Credit Suisse did its job so well that its potential in the future is much smaller”; and Matthew Clark, a London- based analyst at Keefe Bruyette & Woods Ltd, stating that: “there is a much greater scope for UBS to positively surprise than for Credit Suisse,” rating UBS “outperform” and Credit Suisse “market perform.”
So well done Herr Gruebel … although one quarter does not make a turnaround, at least the sick bank of Europe is starting to show signs of life and hope.
That must be a good indicator for the whole banking sector.