UBS is sitting on losses that could be as high as $350 million stemming from its investment in the Facebook initial public offering, and is preparing legal action against Nasdaq as a result, people familar with the matter told CNBC … These people said UBS wanted 1 million shares, but when it did not receive confirmations, it repeated the order multiple times and was left with much more than it intended … “Consistent with our policy on market comments on our positions or intra-quarter performance, we are not disclosing the amount of the loss, which is not material to UBS,” UBS said in a written statement. [CNBC, Related: UBS Doesn't Get Out Of Bed For Less Than $50 Billion In Losses]
Cuts are said to have gone down at the Swiss bank today. Read more »
Court Finds That UBS Exploited Clients And Tricked Them Into Overpaying For Toxic Securities, But In A Legal WayBy Matt Levine
This is kind of exciting: a bank won a CDO case! Or: something nice happened for UBS!
So the story goes like this (from the court opinion): in March 2002, UBS did a synthetic CDO deal called North Street 2002-4 with Landesbank Schleswig-Holstein, a German landesbank, where LSH (now called HSH, due to mergers probably caused in part by this unpleasantness) sold $500mm of protection on a $3bn portfolio “comprised predominantly of assets linked to the United States real estate market (for example, mortgage-backed securities and instruments issued by real estate investment trusts).” The protection attached after $74mm of losses (i.e. UBS bought the most subordinated $74mm of notes) and UBS could manage the stuff in the pool of reference assets:
Under the credit default swap at issue here, [North Street], as protection seller, in exchange for UBS’s agreement to pay premiums, agreed to make certain payments to UBS, as protection buyer, upon the occurrence of defined adverse “credit events” affecting securities in the aforementioned reference pool. While the securities in the reference pool were required to meet certain ratings specifications, UBS selected the initial securities for the pool, and also had the right to substitute assets in and out of the pool during the life of the credit default swap, within defined parameters and through the use of internal procedures specified in a reference pool side agreement between UBS and HSH. The governing documents required that by March 2004, 70% of the reference pool would be comprised of asset-backed securities, real estate investment trust assets, and commercial mortgage-backed securities.
The landesbanks were kind of famous for being muppets back before being a muppet was cool, and this was a pretty muppety deal. Which they’ve now figured out, and sued UBS in New York state court, claiming that UBS was selling them the deal based on the ratings of the underlying securities but actually stuffing North Street with the worst available securities with those ratings: Read more »
Princes of Bear Stearns, kings of Lehman Brothers– have you attempted to gain new employment in the last several years only to encounter prejudice among people who learn of your past? Is pounding the pavement with Bear and Lehman on your resumes not unlike being forced to knock on the doors of your new neighbors and let them know about your registration on a certain list of individuals? Take heart– one investment bank would like to let it be known that while you may have an asterisk next to your name, it believes in second chances. Read more »
One kind of obvious thing about financial markets is that you can’t just call everyone into a room and tell them, “look, guys, just be honest about the price that you would pay / receive for Thing X.” This is because financial industry traders are degenerate lying scumbags. No, wait, that’s not right. This is because if everyone just told each other their reserve prices then it would be really hard for them to make any money trading and so we, like, wouldn’t have a financial system. So you have things like anonymous execution on stock exchanges and dark pools and, um, lying scumbag traders. And that allows you to have profitable trading.
Of course you have to put some limits on the lying scumbaggery: you can’t tell people you’re investing their money while really blowing it on hookers, and I guess now you can’t sell someone synthetic CDOs without telling them who was on the other side. But a little fudging around the edges about the price you’re willing to pay or receive – or the price you could pay or receive elsewhere – is kind of at the heart of what trading is.
Admittedly it’s just a theory but hear us out– based on the following bonus numbers communicated to managing directors this morning in Stamford, is it possible the Swiss’s long-term revenue generating plan is to get someone to burn the place down so they can collect the insurance money and then work out of Howard Johnson’s? Read more »
The good news is that UBS has some money to pay employees. The bad news is that there may not be enough to go around for everyone, depending on how things spread out. Read more »
Earlier today, as in a few minutes ago, we learned that UBS announced it would claw back 2010 bonuses for senior-ranking employees in the investment bank. This may have put a damper on some people’s commute home but in happier news? Those individuals will be getting paid for last year’s work (albeit at a slightly reduced rate) and the only strings attached are that they can never leave UBS. Read more »