Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

UBS Investigations To Start Soon

On Monday April 7th 2008, news emerged that various capital markets regulators on both sides of the Atlantic Ocean are anticipating investigation(s) into whether UBS, the European bank worst hit by the credit crisis, has breached market disclosure regulations. As the TimesOnline reports, "The Swiss Federal Banking Commission ("SFBC") is preparing material on behalf of the Swiss Exchange ("SWX") and Securities and Exchange Commission ("SEC") ahead of an official investigation. A spokesman for the SFBC commented: "I can 'confirm that we are co-ordinating preparation for an investigation ... into whether announcements made by UBS are in line with stock exchange laws in Switzerland.'"

Toomre Capital Markets LLC ("TCM") might be a bit naïve. As one of the premier European global banks, UBS reported net profits on the order of $9 billion during 2005 and 2006; perhaps it was a bit less in 2005 and more in 2006. Did not someone (anyone???) in the current senior management team think that mark-downs of approximately $19 billion in one quarter just might be some market-moving information?

Assuming that the quarterly write-down was evenly distributed, did not any of these "managers" (worthy of some $10-25 million plus a year) think that the markets might be interested that UBS wrote down $6 plus billion each and every month of the first quarter? Let's see. This is really complicated math. Quarterly earnings were about $2.5 billion per month and write-downs were about $billion a month. Perhaps there might just be a "small" loss that exceeded its best year's quarterly earnings? No, the markets would not be interested at all this management teams seems to have thought.

With U.S. Federal prosecutors pushing for Warren Buffet to fire General Reinsurance CEO Joseph Barndon for his supposed tangential awareness of the AIG/General Re fictitious finite reinsurance transaction, one has to wonder what they will push for with this UBS mess? Will they only go for quartering and hanging all senior managers who had any decision making authority since the wind down of John Costas' disaster of hedge fund Dillon Read Capital Management was announced in May 2007? Or will they have the courage to address the Board of Director failures that resulted in such colossal risk management failures? TCM, for one, hopes that UBS' management and board are made an example of for their collective gross incompetence.