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A parable of management folly

Matthew Lynn

Tuesday, 30th September 2008

Matthew Lynn draws lessons from the disastrous strategies pursued by the Swiss giant that was once among the strongest and most respected financial institutions in Europe

There are many things that you look to investment bankers for. Great big gleaming office buildings. Multi-million pound bonuses. Blowing 20 grand on a bottle of wine to impress a client. But mea culpas? That isn’t usually their style.

Earlier this year, however, the Swiss giant UBS was required to publish one of the most embarrassing documents in banking history. The title was innocuous enough: The Shareholder Report on UBS Write-Downs. The content was anything but. Over 50 pages, it laid out in agonising detail the meticulous incompetence with which the bank had been run.

The descent of UBS during the subprime crisis will be studied in the business schools for years to come. And rightly so. Once among the proudest names in the banking industry, a byword for rectitude and stability, it took 100 years of history and blew it in a series of ill-judged gambles. It may not have come close to destroying itself in the way that Lehman Brothers has done, but UBS’s self-inflicted damage is, in many ways, an instructive parable in how the whole investment banking industry lost its way over the past few years.

As recently as 18 months ago, if you asked just about anyone to name Europe’s strongest bank, the answer would have been simple. With the possible exception of Britain’s HSBC, primarily a retail bank, UBS stood head and shoulders above the rest. From its Swiss base, it had by far the strongest private banking business in the world, collecting billions in deposits from its wealthy clients: it was using those vast reservoirs of cheap capital to take on the American giants of the industry.