UBS and the Subprime Mortgage Crisis

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Case Details:

Case Code : FINC061
Case Length : 22 Pages
Period : 2001-2009
Pub. Date : 2010
Teaching Note :Not Available
Organization : UBS AG
Industry : Banking
Countries : Switzerland, US

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Finance | Case Study in Management, Operations, Strategies, Business Ethics, Case Studies


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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.

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"The sizable write-downs that UBS incurred in the last 12 months cannot be explained by any single factor. Rather, in hindsight, a whole chain of unfortunate strategic decisions, insufficient follow-ups, and a lack of skepticism in relation to the bank's own processes and systems were contributing factors both at the risk management and the risk control functions.”

- Swiss Federal Banking Commission - UBS Subprime Report, September 2008.

"In line with our traditional focus, we grew our trading activities in seemingly liquid and high quality securities. The availability of cheap, short-term funding from UBS's strong capital position facilitated this growth, accelerating the expansion of our balance sheet and comparatively high tradable asset inventories. The creation of Dillon Read Capital Management (DRCM) led to an overnight exposure to the US mortgage market. After a range of largely proprietary driven trading activities were transferred into DRCM, the Investment Bank replaced them with client-driven origination, trading and structuring of mortgage-backed securities involving principal risk. This decision was driven by an attempt to close revenue gaps with key competitors in certain areas of the fixed-income business. In hindsight, these three structural issues were important factors in the very bad outcome we experienced in the context of the US real estate market crisis."

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

- Marcel Ospel, Former Chairman, UBS in the Letter to the Shareholders, Annual Report 2007.

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Finance | Case Study in Management, Operations, Strategies, Business Ethics, Case Studies

1] As of December 31, 2008 1 US$ ≈ CHF (Swiss Francs) 1.0673
2] Net loss attributable to shareholders.

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