Archive for April 22nd, 2008

UBS just released an internal report ahead of this week’s upcoming shareholder meeting in the hopes of explaining how they lost $37 billion due to subprime loans. There were several articles in the papers and online about the release. Wisely, UBS mentions the report on their Web site’s home page. That was a good sign. Thankfully, the online report is only 50+ pages long since to someone outside the financial sector, it contains lots of inside baseball or should I say inside francs. There is a helpful glossary that explains all the alphabet soup products and regulatory bodies that are Greek (and Latin) to me.  The findings are particularly straightforward and downright honest. The New York Times’ reporter Uta Harnischfeger commented, “Analysts said the finished product, which reads like a detective novel on reckless banking, could, in the end, help UBS by demonstrating transparency.” Transparent is the right word. Some of the failures that led to the ouster of the chairman and tarnished reputation include (and these are just some):  

• Fragmented approval structure:
• Absence of risk management:Incomplete risk control methodologies:
• Lack of monitoring / visibility:Distraction for Senior Management:
• Inappropriate risk metrics used in strategic planning and assessment:
• Failure to demand a holistic risk assessment:
• Resistance to hard limits:
• Gaps in risk management expertise / experience at the IB Senior Business Management level:
• Failure to respond to wider industry concerns:Lack of response / speed of reaction:
• Lack of challenge to business:
• Lack of strategic coordination:
• Shortcomings in approach:
• Inability to accurately assess valuation risk on a timely basis:
• Insufficient incentives to protect the UBS franchise long-term: 

It is interesting that companies in distress are increasingly using independent internal reports as an early reputation solution. These reports go far in airing the dirty laundry and pre-empting penalties and fines. However, they go even farther in terms of recovering company reputation.  They lay the ground work for the next chairman or CEO on what went wrong and what needs changing in order to get the company back on its feet and off the respirator.