Remember Bradley Birkenfeld? He’s the guy who single-handedly made the government’s case against UBS and forced the Swiss bank to hand over the names of thousands of tax cheats, which resulted in the US scoring $780 million from UBS and may have inspired some 33,000 Americans to “voluntarily disclose offshore accounts to the IRS, generating more than $5 billion.” And yet, despite his assistance, Birkenfeld wasn’t immediately thanked for a job well done. Instead, he was sentenced to forty months in prison (fair-ish, considering he showed a few clients how to avoid paying taxes himself) and told to piss off by the Internal Revenue Service, from whom he sought an award, because he was “not forthcoming about his own role in the scheme,” even as a Justice Department attorney admitted that “…without Mr. Birkenfeld walking into the door of the Department of Justice in the summer of 2007, I doubt as of today that this massive fraud would have been discovered by the US government” (or as his lawyer put it, “They didn’t know how to spell UBS until he showed up. He didn’t just give them a piece of the puzzle. He gave them the entire puzzle”). Now, after doing 32 months at Schuylkill Federal Correctional Institution, getting let out early on account of “good-time credit,” and living in a halfway house in New Hampshire, Birkenfeld has finally been thrown a bone. Read more »
Fewer bodies, more often. Read more »
Things could be better in Europe. Read more »
Numbers for first and second year analysts (who are not happy). Read more »
Investment banks are in large part in the business of creating and selling products to customers. So are lots of other companies. Kia dealers, for instance, sell cars to customers, and part of the job of a Kia salesman is to say to customers “this Sorento is awesome and you should buy it.” This can cause problems because the Sorento may not be awesome and you maybe should not buy it, but these problems are not large because everyone knows about them and so nobody buys Kias solely on the salesman’s representation that they’re awesome.
On Wall Street this dynamic is complicated by at least two factors that don’t exist for Kia. One is a veneer of objectivity that comes from treating finance like physics: “commercial mortgage-backed securities will decline in value over the next 12 months” is at least as subjective an opinion as “Kia Sorentos are not in fact awesome,” but a ton of apparatus – much of it created by banks themselves – has grown up around the notion that it is not. So expressions of personal opinion are often treated as statements of fact, which can then be right or wrong, particularly in hindsight: 12 months later, you can look back and actually see if the CMBS actually declined in value, whereas you have no more access to the Sorento’s awesomeness or lack thereof than you did 12 months ago.
The other is the research settlement, which requires Wall Street research analysts to certify that what they say about stocks really is their personal opinion. That is not a requirement that applies to other industries: a Kia salesman can’t tell you that the Sorento’s top speed is 350mph and that its exhaust smells like bacon, but I’m not aware of any car salesman ever getting in trouble for saying “you look really cool driving that lime-green SUV” even when, in his heart of hearts, the salesman actually thought the customer looked like a tool.
The settlement is awkward because banks are more in the business of selling products than they are in the business of Being Right About Stuff. So banks sometimes market stock offerings where their research analyst has a Sell rating on the stock, and there’s no real conceptual difficulty in that: the research analyst has one opinion, and the salesperson calls the client and offers counter-arguments. But, given the veneer of objectivity, clients don’t just want a salesperson saying “Facebook is great,” they want something that looks like research or fact or analysis to support that pro-Facebook view. So banks like to have people hanging around the sales desk who are not pure golf-and-handshakefulness “salespeople” but something else – “desk analysts” or “strategists” or whatever. They work for the sales and trading department, not research, and they give clients ideas in the hope of generating business for the bank. This can create controversy* when their ideas are not exactly the same as those of research, but of course that is rather the point.
So let’s take a look at this lawsuit filed yesterday by a UBS commercial mortgage strategist named Trevor Murray. He seems not to have gotten along with his boss Ken Cohen, a former Lehman guy now in charge of UBS’s CMBS business. From the complaint: Read more »
Cuts are said to be going down this morning in Stamford. Read more »
UBS announced earnings today and I tell you, it is hard work to get people to focus on the strong fundamentals of your business when you keep distracting them with enormous screw-ups. Today’s:
Due to the gross mishandling of Facebook’s market debut by NASDAQ, we recorded a loss of CHF 349 million [$356mm] in our US Equities business as a result of our efforts to provide best execution for our clients. As a market maker in one of the largest IPOs in US history, we received significant orders from clients, including clients of our wealth management businesses. Due to multiple operational failures by NASDAQ, UBS’s pre-market orders were not confirmed for several hours after the stock had commenced trading. As a result of system protocols that we had designed to ensure our clients’ orders were filled consistent with regulatory guidelines and our own standards, orders were entered multiple times before the necessary confirmations from NASDAQ were received and our systems were able to process them. NASDAQ ultimately filled all of these orders, exposing UBS to far more shares than our clients had ordered. UBS’s loss resulted from NASDAQ’s multiple failures to carry out its obligations, including both opening the Facebook stock for trading and not halting trading in the stock during the day. We will take appropriate legal action against NASDAQ to address its gross mishandling of the offering and its substantial failures to perform its duties.
Once upon a time two months ago Felix Salmon said “The fact is that if UBS ended up losing anywhere close to $350 million on Facebook stock, it has no business being in the equity capital markets at all,” and I laughed, and, um, well, how do people feel about that today? Read more »
The Swiss bank is said to be making its would-be junior mistmakers wait for it. Read more »
Unfortunately-timed cuts are said to have gone down this morning. Read more »