UBS’s $59.2 billion government aid package, announced last week, has prompted a popular backlash against executive pay in a country where tax evasion is not a crime and local governments offer tax breaks to lure millionaires. The bank paid about 12.5 billion francs in performance-related compensation for last year.
Switzerland’s biggest news daily, the tabloid Blick, published letters to former UBS Chairman Marcel Ospel for readers to tear out and sign to demand repayment of his bonuses. The Swiss government said yesterday it wants to make reclaiming compensation easier.
The protest organizers had asked UBS to limit compensation to 500,000 Swiss francs ($429,000) and stop donations to political parties. Cedric Wermuth, head of the group, handed over a giant bank deposit slip for UBS to return past bonuses.
Given the circumstances, this isn’t an unreasonable demand. The bank’s officers and board members fattened earnings on subprime steroids as the credit bubble expanded and interest rates dropped. Then they graciously rewarded themselves based on the artificial results.
But that upside down world has now been righted, and the pieces have fallen into place with a thud. If the profits were unsustainable, then losing bonuses seems a reasonable proposition. What does UBS think about this? Let’s take a look:
“We have received the demands and will look at them,” UBS spokeswoman Rebecca Garcia said.
We are comforted by their sincere gesture, as are the Swiss people. Now Let’s ask the Swiss Federal Banking Commission:
The Swiss Federal Banking Commission, which conducted an investigation into UBS’s losses from the credit crisis, said in a report published last week it didn’t find any evidence that managers intentionally damaged the bank to get a higher bonus.
But that’s exactly how coverups disguised as investigations are conducted. Detectives and accountants intentionally look for the wrong thing, and in this case, the Swiss Federal Banking Committee is definitely covering something up. They should be looking for evidence that managers intentionally juiced the bank’s earnings for a quick burst of profit with full knowledge that the long-term damage would be catastrophic.
When the bank got around to reporting its fiscal third quarter 2008 results, it was the first positive one in four consecutive quarters, but the bank still had write-downs of $4.4B over the period.
UBS AG posted a net profit of 296 million Swiss francs ($252 million) for the third quarter Tuesday, its first after four consecutive quarterly losses, and predicted customers would continue withdrawing funds in the last three months of the year.
The bank benefitted from a 913 million francs ($776 million) tax credit and a revaluation of its credit positions that led to a 2.21 billion francs ($1.88 billion) gain on its books.
UBS said the credit gains reflect an increase in the difference between the market value of its outstanding debt and the amount it would cost UBS to issue this debt under current conditions. Some or all of the gain could be erased if credit conditions change, the company said.
So, say UBS issued a bond for $1000 and now that bond is only worth $800. While you and I see a $200 loss, these honest bankers see a $200 profit. The bank will also use about $6B of the $60B to increase its loan loss reserves, and the remainder will be shoveled into an offshore shell set up by UBS and the Swiss government to launder the remaining radioactive subprime debris.
But most of the bailout money will be used to transfer subprime-related assets and other high-risk securities from UBS to a so-called “bad bank,” whose sole purpose is to sell the risky investments. Any profits will be split between UBS and the Swiss National Bank.
I don’t think they have to worry about how the profit will be split between them, but they better start thinking about how to improve fund performance. Where it counts is in the accounts of its wealthy customers, and they don’t fall for that smoke and mirror garbage like the financial media do. In fact they’re already running away!
UBS did not provide precise figures for October, but indicated that investors should prepare for further large-scale withdrawals
John Cryan, the bank’s chief financial officer, said customers wanted to spread their investments among several banks to minimize risk, a trend he expects to continue for some time.
They wanted to spread their investments among any and all banks without the letters UBS in their names!
The Zurich-based bank’s business with U.S. clients has also suffered as a result of its decision to stop providing offshore services there following allegations that it helped rich Americans evade taxes.
Let’s not forget to add income tax evasion as one of the bank’s specialties. Just to show the bank isn’t all bad, management did solemnly swear that they would only lie if they could get away with it.
UBS decided not to use a controversial accounting rule change that would have flattered its results because investors would “see through it”, the bank said.
John Cryan, chief financial officer, said the Swiss group had considered the new proposals that let companies reclassify financial instruments in ways that would keep price falls from hitting profits.
Mr Cryan said: “We thought about it, but it became quite clear that you had to tell the market you had elected to reclassify the assets and show the market the difference. The market will just say: ‘I’m going to see through it’”.
Don't blame me, I can’t make this stuff up!