Our review has clearly revealed the weaknesses associated with the integrated `one firm' business model. Some of these weaknesses-such as the blurring of the true risk-reward-profile of individual businesses—are the source of substantial risk, as we have seen in the past few months. The US-origined subprime contagion spread across the European markets and the world's most alluring Swiss banks have not become an exception to escape from it. Particularly, Union Bank of Switzerland (UBS) is the worst hit European banking institution posting total write-downs of $44 bn since the unfolding of the subprime crisis in 2007.
For Switzerland, banking is more than just a symbol of the nation. Therefore, in desperation to save its world class banks, the Swiss Government has injected 60 billion Swiss francs to rescue the bank.The subprime crisis has demonstrated how the UBS's top management failed in managing one of the largest banks of the world. One could hardly believe that the UBS made headlines for issues it ought not to. Many analysts believe that bank's strategy to encourage high-risk investments and its poor risk management practices have led to its failure.
A detailed analysis of the bank's report on write-downs to the Swiss Federal Banking Commission also confirms that lack of attention, overconfidence and poor risk management procedures were at the root of its subprime losses.Swiss banks are known for maintaining secrecy of their clients and UBS was no exception. The bank had gained good reputation by extending its services in investment banking, wealth and asset management and retail banking. Despite many positives on its side, it surrendered itself to the subprime crisis.
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