Wealth managers: The gap between the top 2

Morgan Stanley’s US base gives it the numbers: the usual story.

Err. maybe wrong way of looking at things?

Cevian Capital is investing more than €1bn in Swiss bank UBS betting that its valuation will double in three years.

Maybe UBS is priced about right and Morgan Stanley is overpriced?

UBS über alles, über alles in der Welt

A variant of the original translated into English is “Germany above all, above all in the world”), sung by the Germans as their panzers overran Europe.

Better still and more importantly top dog in Asia by a country mile even before CS takeover.

GIC bitten once, still not shy?

Taz GIC when it comes to buying Swiss Banks.

It bot a 3% stake in Swiss private bank Julius Baer, in what FT says @is in a vote of confidence for the bank after months of lacklustre performance”.

FT went on

GIC was previously a large shareholder in UBS. Having purchased hybrid debt instruments in the bank during the financial crisis, the fund became its largest shareholder after the holding converted to equity. The fund sold off the bulk of its stake two years ago, however, after the investment failed to perform.

Related posts

GIC: Loss of S$5.2bn on combined UBS and Citi investments

What Mad Dog Chee doesn’t say about GIC’s UBS investment

LKY talked cock on UBS/ Ang mohs that really invest for long term

GIC’s sale of at a loss of part of its stake in UBS reminded me that one Harry Lee boasted that S’pore was even more long term than Buffett: it had a 30 yr horizon. Well he said that in 2007 or 2008 after GIC bot UBS and Citi and Temask bot Barclays (sold) amd Merrill Lynch (disappeared), so it turns out he was talking cock: like on being a good friend of China? He was a running dog of the US going by the quality of the US crowd versus that of the PRC crowd at his funeral.

Now this is serious long term

— Jardines (controlling shareholder of Hongkong Land where the land in Central now resides) first bought freehold land in Central in 1901, and

— HSBC has owned its nearby site since 1866.

And that’s nothing. The Duke of Westminster has properties in central London dating from the 17th century.

What Mad Dog Chee doesn’t say about GIC’s UBS investment

The anti-PAP cybernuts have been circulating Mad Dog’s “analysis” about GIC’s investment in UBS on social media.

What he doesn’t tell S’poreans is that when the deal was announced, the shareholders of UBS especially the Swiss retail investors were publicly complaining to the int’l and Swiss media that the deal was a sweet deal for GIC, short-changing them. They wanted a rights issue which they didn’t get and which they were really grateful when the shares tanked. They got on their knees and thanked mgt.

Why liddat Dr Chee? It’s an inconvenient fact that doesn’t fit yr “PAP are incompetent”analysis? Or u didn’t know? That blur isit?

Yes, GIC got the UBS investment wrong. But I didn’t hear Mad Dog or other anti-PAP activists, or cybernuts pointing out that it was a bad move at the time.

Dr Paul, can u and Wee Nam increase the dosage? Triple it at vey least. Maybe time to try something new? His relapses are getting a bit too frequent. Maybe call in Dr Ang Yong Guan to help? He specialises in nut cases doesn’t he?

S-Reits are still a hold

for me.

After all UBS tells its private banking clients “[Reit] yield spreads to government bonds in Singapore (450 basis points) and Hong Kong (400bp) compare favourably with the global average of 306bp . . . And we expect the continued demand for yield to drive this spread lower, supporting Reit prices.”

But then didn’t DBS tell its private banking clients to buy Swiber bonds?

But then UBS is no DBS.

Wayang only, our banking secrecy laws

In the case reported below, MAS was quoted as saying by ST that “Banking information could be disclosed through client’s consent or via Singapore mutual legal assistance.”

MAS seems to suggest that consent or mutual assistance are the main channels for disclosure.

So where got banking secrecy? All wayang.

From NYT Dealbook:

UBS Gives I.R.S. Records on U.S. Citizen’s Account in SingaporeUBS ended a legal fight with the Internal Revenue Service, agreeing to hand over records on an American client’s account in Singapore as the authorities seek to move beyond Switzerland in their fight against offshore tax evasion.

• BLOOMBERG

“UBS confirms that it complied with the summons based on client consent in accordance with Singapore law,” Marsha Askins, a UBS spokeswoman, said in an e-mail.

IRS agents served a summons on UBS in 2013 for the records. Hsiaw had $990,351 in his UBS account in Switzerland in 2001, and closed that the next year, transferring $194,356 to his Singapore account in 2002, according to the IRS petition. The bank said it couldn’t produce the information because Singapore’s bank-secrecy laws prevent disclosure without permission from Hsiaw, which he hadn’t provided, according to a court filing.

Singapore’s laws and regulations don’t prohibit sharing of information for investigations into possible tax offenses, and banking information could be disclosed through client’s consent or Singapore mutual legal assistance, according to the city state’s central bank.

“Even if Singapore’s bank secrecy laws, as UBS contends, precludes disclosure of the summoned bank records relating or pertaining to Hsiaw’s Singapore account(s), international comity requires that the records be disclosed,” IRS revenue agent James Oertel said in the Feb. 23 petition.

 

US marshalls target Harry’s and Ho’s banks

Citi and UBS get fined big time by US. GIC has stakes in both and both are Harry’s 30-yr banks.

Ho Ho Ho. Lucky Temasek sold out of BoA as BoA is really big time criminal.

And then there is StanChart that rolled over when a “rogue” regulator fined it once, and then another time for good measure

StanChart: Troubles never come singly

StanChart’s looking dysfunctional/ Problem for ang moh banks

What Citi and UBS pleaded guilty to

Below is a summary of what Citi and UBS (Harry’s “forever” investments) pleaded guilty to from NYT’s Dealbook

HEAVY FINES FOR FOREIGN EXCHANGE COLLUSION At big banks, foreign exchange trading seemed like the ideal business – relatively low risk for solid revenues. But “what seemed like the perfect business turned out to be the perfect breeding ground for crime,” Michael Corkery and Ben Protess write in DealBook. Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland pleaded guilty to a series of federal crimes over a scheme to manipulate the value of the world’s currencies, the Justice Department said Wednesday. A fifth bank, UBS, was also accused of foreign currency manipulation but was not criminally charged because it had alerted the Justice Department to possible misconduct. However, the accusations cost the bank an earlier nonprosecution agreement related to the manipulation of the London Interbank Offered Rate, or Libor.

Prosecutors said traders at the five banks colluded from at least 2007 to 2013. “To carry out the scheme, one trader would typically build a huge position in a currency, then unload it at a crucial moment, hoping to move prices. Traders at the other banks would play along, coordinating their actions in online chat rooms,” Mr. Corkery and Mr. Protess write. The foreign exchange business may have been particularly susceptible to manipulation because it can be less profitable than other forms of trading, which increases the pressure for the traders to look for alternative ways to pad their returns, analysts said. Also, no one government agency is responsible for policing the currency market, creating a regulatory void.

The five banks, which also struck civil settlements with the Federal Reserve, the Commodity Futures Trading Commission, a British regulator and New York’s financial regulator, agreed to pay $5.6 billion in penalties. That is in addition to the $4.25 billion that some of these banks agreed to pay in November to many regulators. Together, the amount nearly equalsthe foreign exchange revenue generated at 10 of the world’s largest banks last year, which was $11.6 billion, according to Coalition, a financial analytics provider.

WILL PENALTIES CHANGE BANKS’ BEHAVIOR? What’s notable in the currency manipulation case is the ethos articulated by the traders involved. They called themselves “the mafia” and “the cartel,” and one Barclays trader wrote in an online chat room, “If you aint cheating, you aint trying.” In the White Collar Watch column, Peter J. Henning asks whether the guilty pleas and penalties will make a difference in how banks do business, noting that “even as penalty after penalty is paid by big banks in various cases, it seems as though the same cast of corporate characters keeps reappearing.”

He notes that guilty pleas from the big banks are “noticeably tougher” than the enforcement actions of the past, when violations drew only deferred or nonprosecution agreements. Yet the act of pleading guilty doesn’t carry the same stigma as it did in the past, Mr. Henning writes, because the government has tried to keep a guilty plea from hindering a bank’s operations. The Justice Department has also been demanding the identities of the employees behind the violations, but it’s unclear whether it will actually prosecute those people. “To change corporate culture and prevent violations from happening in the future, prosecutors may have to go beyond just demanding cooperation and threatening ever larger fines,” Mr. Henning contends.

Two of LKY’s “forever” banks are criminals

Shortly before Temasek sold, MM had said that S’pore Inc’s investments in Citi, UBS, and Merill Lynch had a time-frame of 30 yrs. Temasek held its ML investment for over a yr. GIC still owns shares in Citi (profitable), and UBS (big loss). https://atans1.wordpress.com/2011/01/17/mm-got-it-right-temasek-got-it-wrong/

UBS and Citi are still owned by GIC are now big time crooks. Recently, JP Morgan, Barclays, Citigroup and Royal Bank of Scotland – pleaded guilty to criminal charges in the US relating to the rigging of currency markets.

The four, and Switzerland’s UBS, which pleaded guilty to a different charge, agreed to pay $5.7bn (£3.6bn) in fines.

 

Money for jam

I’m a shareholder in Lippo Malls Indonesia Retail Trust that has called for a massive rights issue (S$336.8m) that will not be underwritten by the five Joint Mgrs (StanChart, CIMB, Credit Suisse, BoA and UBS). Market is too volatile for them to risk their money for “peanuts”? In normal markets, they would be entitled to a fee of 2- 3% for underwriting the rights issue. This would have worked out to fees of between S$6.7m- S$10.1m.

But the five of them (StanChart, CIMB, Credit Suisse, BoA and UBS) are getting a total of S$1.5m (or 0.45% of amt to be raised) to do bugger all as I see it. This is 31.25% of the fees that will paid in relation to the rights issue. The rest of the fees will go to StanChart (financial adviser), lawyers, accountants, printers and so on.

Guess LMIR didn’t want to upset the investment banks who were planning to underwrite the issue.

Banks’ Alice-in-Wonderland Accounting

The problem with a bank’s balance sheet is that on the left side nothing’s right and on the right side nothing’s left.

Think Lehman’s and Dexia’s balance sheets. One day AAA, six months’s later rubbish. That fast leh?

Profit and loss accounts are just as rubbishy. Recently UBS’s third quater profit fell to 1.02 billion Swiss francs (US$1.2 billion) in the three months ended Sept. 30 from 1.66 billion francs in the period a year earlier. The trading loss of  1.85bn Swiss francs (alleged caused by a rogue trader) and charges linked to a cost-cutting plan were partly offset by an accounting gain on the bank’s own credit of 1.8 billion francs and the sale of some investments.

Now this accounting treatment was not not only used by UBS. 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.

Lex describes the accounting treament thus: ” Try this on your credit card company: your creditworthiness has weakened, so you write down the value of what you owe them to reflect the greater riskthat you will not pay it back and credit the difference to your personal account. That is what exactly accounting allows”.

UBS: What else can go wrong?

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.

PAP: Missed one, bagged one?

Nice to read that a S’porean is going to be head of UBS here. UBS Bank has appointed Mr Edmund Koh as its Singapore country head and CEO of its Singapore wealth management division. He will also become a member of the UBS Global Wealth Management Executive Committee. He assumes his responsibilities at the bank early next year.

For all its investment bank problems, UBS’ wealth management business is second to none internationally, and in Asia. In Asia, HK and S’pore are the two crown jewels in UBS’ wealth mgt division.

Mr Koh was until recently the president of Ta Chong Bank in Taiwan. He was reorganising the bank for US private equity group, Carlyle. He was once head of regional consumer banking group at DBS Bank’s consumer lending business in Asia and the CEO of Prudential Assurance Company here.

A few years ago, there were stories that Edmund Koh tried, but failed to become a PAP candidate MP.

So with parly opening tomorrow, I tot it was a suitable time to remind S’poreans of these rumours. In the new batch of MPs, we got “I didn’t do NS” Puthucheary, and  “I don’t know what to say” Tin. Give me an Edmund Koh anytime over people like Puthucheary and Tin.

Having said that, I must say I’m getting gd vibes abt “Kee Chiu” Chan. He is talking the talk at the Ministry for Community Development, Youth and Sports when it comes to welfare. He is also walking the walk. I understand the MCYS homepage has been revamped and now lists all the welfare schemes http://app1.mcys.gov.sg/Assistance.aspx?tid=115 . The absence of this list previously gave rise to suspicious abt whether the government wanted to make it difficult to get welfare.

I didn’t have a gd impression of him because of his comments on the Internet, his speech abt the Chinese miners’ republic, and his behaviour when the PAP was caught busing supporters to a rally. But if he continues what he is saying and doing abt welfare, I’ll say “Kee Chiu Hoy Say leh”

UBS: And GIC wasn’t consulted?

I don’t know what shocked me most.

I read in Monday’s Today that despite being the largest single shareholder in UBS (6.4%), GIC was not consulted on the management change when the CEO resigned. He resigned over differences in strategy and corporate governance issues.

Yesterday evening Reuters reported that “GIC supported former chief executive Oswald Gruebel’s strategic plan for the bank and believed he could have stayed on to manage it through the latest crisis, a source with direct knowledge of the matter said on Tuesday … GIC’s support of Mr Gruebel until the very end also shows that while his leaving may have satisfied some shareholders, it hardly reassured the Singapore fund, which owns 6.4 per cent of the bank.” (Sorry I don’t have the link as I got the report via BT Online.)

Given that GIC is the single largest shareholder and supported his plan, and the board was meeting in S’pore, GIC should have been consulted. Would any company where Warren Buffett is the single largest shareholder dare sack a CEO that had his backing? Unlikely.

Time for GIC to gain some respect by flexing its financial muscles. No more Ang Moh Tua Kee pls.

GIC has internal communication problems?

I am pleased to read in today’s FT that GIC has in a statement (can’t find it to link to) expressed its concern to UBS abt the latest loss of US$2.3bn.

At least, it is concerned it bought us 6.4% in a dog with fleas.

Why these comments by me?

Yesterday I was appalled by this media statement to Today. GIC came across as saying, “So what if GIC lost money in UBS, it made money elsewhere, and that’s the important thing.” This was hedgie gunslinger talk, not that of a responsible fund manager.

True. performance should be judged on the performance of the entire portfolio,  not its individual holdings. But

– where a bigger than normal bet is made (GIC usually buys less than 5% of an investee),

– in a special deal for GIC alone,

– where it trumpeted very loudly its prowess at the time when the deal was made,

such such public insouciance by Jennifer Lewis Head, Corporate Affairs and Communications, is unacceptable.  Especially as GIC manages our money. (BTW, yes, she helped Tony Tan in the debacle of a campaign in her personal capacity.)

So I am glad to read that GIC is concerned abt its investment in UBS.

UBS: Why GIC may have to take a loss

The investment bank of UBS “now looks as likely to die as it is to live,” writes Felix Salmon of Reuters. Selling or spinning off the unit don’t look like great options in the current environment, he says.

So there goes GIC thesis of a unique franchise combining wealth mgt and investment banking.

Remember, GIC has a 6.4% interest in this dog with fleas and GIC is down around S$10bn as of Thursday last week. Since then the loss has reduced to S$9.75bn. Even Mrs Goh Chok Tong would not call this sum “peanuts”.

Sumething must be rotten with UBS’ mgt systems

Not easy to lose US$2bn. It takes a large amount of capital to be put at risk and one has to settle trades with real money. And one has to know how to fool the risk management system.As someone who has “arbitraged”, I know that if I can’t close positions on the same day, someone in the firm will know abt the trades as the firm has to borrow money to fund a trade, or expect payment from a counterparty.

As this article explains, it’s never a one- person show, no matter what mgt claims.

What’s yr advice on UBS, TT?

GIC’s big loss-making investment in UBS happened on Tony Tan’s watch at GIC.

Given the latest problem at UBS, a US$2bn “unauthorized” loss (anyone ever heard of an “authorized” loss?”, and Tony Tan’s boasting of his expertise, PM should ask him for advice on what to do with this long-term investment?

Too bad, the president can only give advice and be a security guard. In investment management and investment banking, there is a school of thought that believes that those who created the shit, should clean up the mess themselves.

Update at 4.15pm on 16 September 2011

Local paper reported that the book loss on GIC’s 6.4% in UBS is S$10bn based on yesterday’s closing price of UBS shares.

GIC: Loss of S$5.2bn on combined UBS and Citi investments

(Note that on 27 July 2011 at 8.20am, I revised the article)

Using BT’s numbers that appeared in BT today, I calculated that GIC has a book loss of S$8.4bn on UBS, a profit of S$1.9bn on Citi and a paper profit of S$1.3bn. So this adventure in distress investing has not paid off yet. The net book loss is S$5.2bn.

GIC owns 245.48 million UBS shares, or a stake of 6.41 per cent in the bank, UBS’s latest annual report shows. That stake would be worth some 3.41 billion francs, at UBS’s share price of 13.88 francs at 9.30pm Singapore time yesterday. Even after including the 1.98 billion in coupon payments that GIC received in the first two years of its investment in UBS, its paper loss is about 5.6 billion francs*, or 51 per cent of the original 11 billion francs.

By contrast, its current stake in Citi is showing a large paper gain.

After selling half its original stake in Citi for a profit of US$1.6 billion** in September 2009, GIC still owns 3.86 per cent of the bank’s ordinary equity – or about 112.095 million shares.

The average cost of those shares was US$29.50 each – after adjusting for a reverse split of Citi shares in May that merged every 10 of its shares into one share – based on information provided by GIC in September 2009.

At yesterday’s opening price of US$39.69 for Citi shares in New York, the shares would be worth about US$4.45 billion, compared to the US$3.31 billion cost of acquiring them, giving GIC a paper profit of US$1.14 billion***, or some 34 per cent.

(*S$8.4bn, **S$1.9bn, ***S$1.3bn)

GIC’s dog investment will be less profitable

Switzerland has proposed new rules that will make UBS less profitable. As GIC is 45% underwater on its UBS investment, this means it may take longer for GIC to breakeven on this dog with fleas. MM’s talk of 30 years may be an understatement. And he was talking of profit not breakeven.

And GIC may have to invest more in UBS if it decides that it wants to maintain its present holding. These rules means UBS will have to raise capital.

Finance 101: the more capital is required to hold, the less funds it has to make money because capital has to be invested in very safe assets, normally government bonds of the supervising country.

UBS and Credit Suisse will have to accumulate billions of francs in extra capital under proposals from a Swiss expert group on the role of banks deemed “too big to fail.”

The recommendations will oblige Switzerland’s two top banks to maintain supplementary national capital standards far in excess of the Basel III rules agreed by international regulators last month. note

The proposals will oblige the banks to hold total capital equivalent to 19 per cent of the risk weighted assets on their balance sheets, based on their current figures.

Under the proposals, the first 10 per cent of capital will have to be strictly defined “common equity” – meaning capital of the highest quality. The requirement is three percentage points more than the 7 per cent proposed under Basel III for banks to pay bonuses. FT reports.

Related posts

https://atans1.wordpress.com/2010/10/01/gics-loss-on-ubs-and-citi-investment/

https://atans1.wordpress.com/2009/11/24/where-value-investing-can-go-wrong/

The second link talks abt GIC’s and Temasek’s pre -crisis strategy of investing in efficient (in hindsight thinly capitalised) banks.

GIC’s loss on UBS and Citi can fund 13 YOGs

The unrealised loss is S$5.5bn or 28.8% of the total investment in both banks. (S$18.1bn). This can fund slightly more than 13 of VB’s Kiddie Games and buy the poor (he berates) all the hawker and restaurant meals (sharks’ fin combs included) they will ever.

At last Friday’s closing price of US$3.90, Citi’s shares would be worth about US$4.4 bn, compared to the US$3.3 bn (S$4.3bn) cost. This gives  GIC a paper profit of US$1.1 billion (S$1.5bn). Gd job GIC. And I didn’t take into account the profit it made selling part of its stake.

But GIC’s investment of 11 bn Swiss francs (originally convertible notes issued by UBS) or S$14.8bn is showing an unrealised loss of 4.9 bn francs (S$6.6 bn) based on last Friday’s closing price, even taking into the 2 bn francs it received in interest.

GIC now owns 3.8% of Citi’s common stock and 6.4% of UBS’s common stock, GIC said at a briefing on its latest annual report on Tuesday.

GIC: US will not prosecute UBS

Switzerland yesterday  ended months of uncertainty after the country’s parliament finally approved legislation allowing the transfer of 4,450 names of American clients suspected of evading taxes to be passed to the US authorities.

The decision followed days of parliamentary squabbles  that threatened to delay the treaty.

Switzerland promised to deliver the names by August 19. A failure  could have prompted US legal action against UBS, destroying shareholder value.

GIC/UBS: It’s going to be a long hot summer

The Swiss upper house on Wednesday rejected the idea of a popular referendum to decide on the UBS client data deal, putting it at loggerheads with the lower chamber and casting doubt on how Bern will keep its promises to Washington.

NYT piece.

Reminder: So long as the deal is not approved, the danger is that the US may decide to prosecute UBS  for helping its US clients evade taxes. This could destroy UBS .

As MM is among Time’s 100 world’s influential people and ST is forever playing up his influence with US policy makers and as he is chairman of GIC, shouldn’t he be calling the US president? The US has an interest in S’pore’s continued stability under the present government.

GIC: UBS-US tax deal approved (somewhat*)

GIC can relax. Much earlier than expected the Swiss parly approved the deal.

If it had not been approved, UBS shareholders could have said bye-bye to their money. The US was threatening to indict UBS for assisting in the evasion of US taxes.

Update 16 June

Opps spoke too soon.There is a proposal for a national referendum on the accord, leaving its ultimate fate in doubt.

Will be a long hot summer as GIC (and we S’poreans) wait to see whether the US prosecutes UBS.

*And title was updated too to reflect continued uncertainty.

GIC: UBS remains in limbo

A major tax agreement between the US and Switzerland has been rejected by the Swiss parliament.

The deal would have paved the way for Swiss banking giant UBS to disclose account details to US tax authorities.

The late vote by Switzerland’s lower house of parliament is unlikely to kill off the deal, but may mean weeks of delay.

In the mean time, UBS mgt will have to limp on, with the threat of US legal action that could destroy the bank continuing.  It will be a long hot summer for both mgt and GIC.

UBS: GIC’s Shin?

Oh dear.  “The Swiss banking giant UBS has stepped up its lobbying to pass a treaty with the United States that would resolve a dispute over tax-evading clients, amid signs that the deal is running into trouble in [the Swiss] Parliament,” NYT.  Reminder: if the US goes after UBS, UBS could go the way of Arthur Anderssen, the auditing firm that died because of its misdeeds.  Then we might never recover our investment.

Looks like UBS is becoming GIC’s Shin — the losses, fallout and bad publicity of this investment (like Shin for Temasek) go on and on.

The latest on Shin is that Thai Prime Minister Abhisit Vejjajiva has appeared on national television to reject a demand from demonstrators that he resign by midday and call elections. In response the demonstrators are stepping up the tempo. So far, there is no violence.

UBS: This shld worry us

US hanging tough, playing rough,unwilling to re-enter talks to alter the deal struck with Switzerland to end a damaging tax case against UBS, the U.S. ambassador in Bern was quoted saying in a Swiss Sunday paper.

Other recent postings

https://atans1.wordpress.com/2010/02/10/ubs-that-dog-with-fleas/

https://atans1.wordpress.com/2010/01/30/gic-can-ubs-survive-us-indictment/

UBS: That dog with fleas

The good news you can read in our MSM.

The bad news, that you may have missed, is that outflows from UBS’s wealth management and Swiss banking operations nearly doubled to SFr33bn compared with the previous quarter, and SFr12bn flowed out from the US wealth business. Like their rival Credit Suisse, and the smaller Swiss private banks, wealth management and Swiss banking operations are at the heart of UBS’s operations and profitability.

The ongoing problems with the US tax authorities are not going to help staunch the outflow in these areas. The US accused UBS of hiding nearly US$15bn in assets of US customers, and is seeking the account details of some of UBS’s US clients.

For what its worth, UBS  said they were confident that the long-running dispute with US tax authorities would be resolved.

Wondering why I blog so much on UBS? Two reasons.

One, is that UBS are a fascinating case study in what can go wrong in a super blue chip. When S’pore Inc bought into Merrill Lynch, Citi and UBS, I had concerns about the investments in the first two.  But UBS? Tot it was a no-brainer, dunk slam investment.

The other is that GIC manage our reserves: this is one major balls-up.

Where value investing can go wrong

“A study by Standard & Poor’s, one of the world’s leading credit rating agencies, has raised questions over the financial strength of some of the biggest banks ahead of new rules that could require them to raise more funds.

‘The analysis by S&P showed that HSBC is the best capitalised bank in the world, while Switzerland’s UBS, Citigroup of the US and several of Japan’s biggest banks are among the weakest.”: an excerpt from the FT.

No the purpose is not to show that highly paid managers at GIC goffed, or how smart I am. I have been a shareholder of HSBC since the 1980s. Even during Green’s (Christian + McKinsey, a lethal combination that always leads to problems) tenure as CEO, I kept the faith.

Now that the CEO is a man who joined the bank as an International Officer from a minor public school with I think A-levels, and he is basing himself in HK, one can only expect the return to the values that made HSBC great during the tenures of Sandberg, Purvis and Bond. Oh Purvis won the Military Cross in Korea, when he disobeyed orders to withdraw. He claimed he couldn’t hear the radio messge.

Sorry I am digressing. When Temasek bought into Merrill Lynch and Barclays and  GIC into UBS and Citi, I realised that they were buying into highly efficient banking machines. There was just enough capital for regulatory reasons and to provide a buffer for some things going wrong.  They needed a bit more cushion and GIC, Temasek were providing it.  Risky but history was on their side.

When the world recovered from the credit crunch of 2006, 2007, GIC and Temasek would reap the rewards of these finely tuned cash machines. They were the equivalent of the best of the best F1 cars.  I thought we had smart boys and gals. And that the risk would pay off.

But then came Bear Sterns, Lehman Brothers and AIG, and the rules changed. The winners were the better capitalised banks. If HSBC had as little capital as Citi, I’d be a poor man. The amounts it had to write-off on US sub prime would have shmed Citi. But it had capital.

So value investing doesn’t always pay off.

Free Option on Revival of a Swiss Bank

“Analysts at Credit Suisse reckon that even though UBS will not be able to pay any dividends for the next few years, its shares are so cheap relative to the aggressive profit-targets that it has announced that they are a “free option” on a revival of the investment bank.” : Economist.

The issue is will the Swiss regulators allow the bank to expand as aggressively as it wants t,o especially as Switzerland had to rescue the bank.  Albeit the Swiss government made a good profit.

Readers may remember that GIC first bought into UBS in December 2007 and has been sitting on a loss ever since then.