Scandal dents Swiss bank’s reputation


three keys that make up the UBS logo symbolise confidence, security and discretion. After yesterday’s news, that logo needs to be redesigned.

Although the $2bn hit is likely to wipe out third quarter profits (estimated at $1.5bn by analysts), the loss itself will be manageable enough.

UBS lost $1.32bn in the second quarter of 2009 and lived to tell the tale, while its subprime losses – as well as those at other banks – were even larger (see table on opposite page).

The hit is equivalent to 3.4 per cent of the bank’s tangible book value at the end of the second quarter, or a hit of around 44 basis points to its capital as measured under Basel III, say analysts at RBC. Even on the most conservative measure, UBS is forecast to have a core tier one capital ratio of 10 per cent under Basel III at the end of 2012, falling to 9.8 per cent following this hit, still more than Credit Suisse on 8.8 per cent.

It is the scale of the reputational damage that could end up costing UBS much, much more – as last night’s Moody’s downgrade review demonstrates.

The rogue trader scandal couldn’t have come at a worse time for the Swiss bank, which was just beginning to recover from a flight of wealth management clients following the US tax evasion probe and financial crisis (see graph right).

Clients had only started to return in recent months, and their business was incredibly hard won. Oswald Grübel had a huge task in convincing wealthy people that the bank was to be trusted again.

It is hard not to feel sorry for Grübel, who has led the bank admirably since 2009. In one fell swoop, much the good work done by the UBS management team and its bankers has been undone.