Readers will know by now that UBS, where GIC is a major long-term (and suffering) investor, is planning to reduce the scale of its investment banking operations, the source of its on-going problems since 2007.
But they may not know “What they are trying to do has never been done before,” Christopher Wheeler, an analyst at Mediobanca, said. “They want to shrink the investment bank by choice, which means unwinding positions without loss and running down their books while keeping the morale among staff, and it’s unclear who’s running the shop.”
And don’t be fooled by its latest results. Despite being hit by a 1.85bn-franc loss from deals made by an alleged rogue trader, it just made a better-than-expected third-quarter net profit of 1bn Swiss francs (US$1.1bn).
The loss was almost entirely offset by a 1.77bn-franc accounting gain that came from changes to the value of the bank’s own debt. One of these days, I’ll blog on the Alice-in-Wonderland accounting that allows this type of gain to materialise. According to the FT’s Lex, four-fifths of the US$16bn net profits in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.