Financial Risk Management at Union Bank of Switzerland

Abstract

Union Bank of Switzerland (UBS) is one of the largest investment managers in the world. UBS serves institutional investors and high net-worth individuals by offering a range of products and services including mutual funds, asset management, corporate finance, and estate planning. UBS also provides securities underwriting services, mergers and acquisitions advice and trades in fixed-income products, and foreign exchange. The company faces many risks. These include interest rate risks, currency risks, equity risks, credit risks, liquidity risks and capital adequacy risks. The case outlines the risks and the mechanisms UBS employs to mitigate them.

INTRODUCTION

One of the largest investment managers in the world, UBS had four major segments. UBS Wealth Management & Business Banking, UBS Global Asset Management, UBS Warburg (Investment Banking) and UBS Paine Webber (wealth management for private clients. UBS served institutional investors and high-net-worth individuals by offering a range of products and services including mutual funds, asset management, corporate finance, and estate planning. UBS also provided securities underwriting services, mergers & acquisitions advice and traded in fixed-income products, and foreign exchange. The company also provided traditional banking services. To strengthen its asset management capabilities, UBS had bought RT Capital Management (renamed Brinson Canada), the institutional asset management business of RBC Financial Group, Canada. UBS also had plans to expand its private banking services in Europe. UBS had more than 69,000 employees operating in more than 50 countries. ....

UBS continued to grow by acquisitions in the 1950s. By 1962, it had 81 branches. In 1967 it opened a full-service office in London. During the 1970s, UBS established several securities underwriting subsidiaries abroad. But the firm's UK brokerage business was hit hard by the 1987 US stock market crash. Over the next two years, losses continued, prompting an overhaul of the London operations. Then the bank's US operations were badly affected by the collapse of the junk bond market in 1990. Notwithstanding these setbacks, UBS set up offices in Paris, Singapore, and Hong Kong and took over Chase Manhattan's (now J.P. Morgan Chase) New York money management unit in 1991. The firm also continued to expand within Switzerland, buying five more banks to boost market share and strengthen its branch network. But these acquisitions left UBS with overlapping operations and a bloated infrastructure when recession hit. Falling real estate values left the bank with a heavy load of nonperforming loans.

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        Case Code   FINA015
   Case Length    12 Pages
              Period    2003
 Organization     Union Bank of Switzerland
        Pub Date     2003
Teaching Note    Not Available
     Countries    Switzerland
      Industry    Banking and Investments

Issues

Financial Risk Mnaagement, Union Bank of Switzerland

UBS; Union Bank of Switzerland; Currency risks; Equity risks; Credit risks; Capital adequacy risks; Interest rate risks; Liquidity risks; Market risk; ERM at Credit Suisse

Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.