The SEC settled a little crisis-era CDO fraud case with UBS today and the fraud is pretty entertainingly shitty. Basically UBS provided the warehouse for a synthetic CDO where the notorious ACA was the collateral manager, and the disclosed deal was that, when the CDO closed, it would enter into (as protection seller) any CDS contracts that UBS had entered as part of the warehouse at (1) the market price of those CDS or (2) the price UBS had received for them as initial counterparty, whichever was more favorable to UBS.1 Now right there you’ve got some optionality and room for fuzziness, and you could imagine various unpleasant schemes where, for instance, UBS cherry-picks some contracts to transfer at market and some at historic price, or where UBS mis-marks some contracts to get a better deal when it transfers them.
But the actual scheme was simpler and dumber: Read more »
Here’s a good rule of thumb. When one bank buys a business from another bank, it’s almost always a case of regulatory arbitrage. It’s never really because of synergies or managerial talent or whatever other hokum the media relations churn out to their willing dupes in the press. It’s just about one bank being better able to take advantage of the rules.
So even though the rationale for JPMorgan Chase buying the over-the-counter commodities derivatives business of UBS remains mysterious, you can safely surmise this is regulatory arbitrage. Most likely, it’s got to do with capital requirements.
Umm maybe? I don’t know, this question seems a little over-determined; the thing is that pretty much everyone thinks that (1) JPMorgan is pretty good at running an investment bank, the occasional hiccup aside, and that (2) UBS is pretty crap at doing so. So are US regulators relatively more comfortable with JPM managing this portfolio than Swiss regulators are with UBS doing so? Sure, probably, but probably so are the respective shareholders, and counterparties, and senior managements, and anyone else you might ask. Really moving any portfolio of anything from UBS to JPMorgan is probably Pareto optimal.
UBS AG, the Swiss lender that’s shrinking its investment banking business to focus on wealth management, said it has a business relationship with as many as eight out of 10 billionaires in Asia. “We have a penetration of one in two billionaires in the world,” Chief Executive Officer Sergio Ermotti told analysts and reporters on a call after second-quarter earnings today. “In Asia, this was much deeper.” The Zurich-based bank has a relationship with as many as 80 percent of the billionaires in Asia, a UBS official said in an e-mail following the call.” [Bloomberg]
And while UBS certainly cannot give as good as it gets, it has evened the score with BriMoy and the rest of the Charlotte bullies. Unfortunately, this has done very little to actually make UBS more money, but it knows how to do what it needs to do to have it make it more money. Read more »