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UBS AG (UBS)Stock (Financial Services Industry, Investment Banks Industry)
 Though UBS has historically taken a conservative approach to its businesses, it did delve into the trading of asset-backed securities and other risky investments throughout 2006 and 2007. With the 2007 fallout in the subprime mortgage industry, UBS found itself stuck with billions of dollars worth of highly leveraged debt, forcing write-downs of over $3bn in the third quarter, an additional $10bn on December 10, 2007, and then $19 Billion in Q1 2008[1][2] At the same time, growth in UBS's private banking division slowed.[3] Additionally, there has been pressure in the EU to relax Swiss privacy laws, which could decrease the allure of UBS’s private banking services.[4] Despite this, UBS has established offices throughout Asia and other high-growth regions to capture the business of the rapidly increasing number of wealthy people there, positioning itself to benefit from these regions’ explosive growth.[5]
[edit] Business Overview Zürich, Switzerland-based UBS was formed in 1998 by the merger of the Union Bank of Switzerland with the Swiss Bank Corporation. Since then, the firm has grown to become the largest asset manager in the world, with $2.13 trillion in client assets under management as of September 30, 2007, as well as a premier investment bank.[7] UBS operates in five divisions:
[edit] Trends and Forces[edit] Credit crunch could still hurt earningsContinuing deterioration in the global credit markets would have a substantially negative impact on UBS. As of October 31, 2007, UBS held around $24 billion in securities that needed to be repackaged and sold.[10] Unfortunately, the market for collateralized debt obligations (CDOs) had all but disappeared, forcing UBS to hold these securities and take losses as their market value fell. In 2007 alone, the firm took around $13.5bn in write-downs on these securities.[11] Further declines in the demand for these CDOs could cause UBS to suffer additional losses. Though CDOs and other risky securities only accounted for a small portion of the firm’s assets as of 2007, many of them were highly leveraged; as such, a decline in their value would have a much larger impact on UBS’s total equity.  [edit] Low interest rates benefit UBSInterest rates can be thought of as the cost of borrowing money. Though the impact of interest rates spans across the economy, businesses and lenders are particularly sensitive to fluctuations in interest rates. As interest rates increase, businesses are less likely to issue debt or equity given that the price of borrowing has increased. U.S. interest rates have, however, been fairly low since 2004, which has played a significant role in driving business activities. UBS has benefited from high levels of mergers and acquisitions, underwriting, and IPO activities over the last three years. The 2007 rate cuts by the U.S. Federal Reserve and Central Bank of England, as well as low rates in Switzerland, could all benefit UBS by reducing the cost of borrowing and stimulating business activities. [edit] Changes to Swiss privacy laws could hurt reputationPressure from the European Union to crack down on money laundering could damage Switzerland’s famous reputation for banking privacy. As a Swiss bank, UBS offers clients from around the world the privacy and discretion for which the country is renowned. In recent years, however, the European Union has increasingly pushed for greater transparency in the Swiss banking system, presumably for the purpose of deterring money laundering and tax evasion. For UBS, this represents a threat to the competitive edge that the allure of these privacy laws gives it over non-Swiss competitors. UBS has taken measures to maintain its reputation for confidentiality, establishing operations in Singapore following the passage of laws there providing accountholders with greater privacy.[12] Nonetheless, any significant changes to the Swiss banking laws could impact UBS’s global image and be detrimental to the firm’s core private banking and wealth management divisions. [edit] Emerging economies provide strong growthWith a well-established presence in the highly developed European and North American markets, UBS has made moves to expand into higher-growth regions such as Asia, the Middle East, and Brazil. Many of these economies have been growing very rapidly, leading to an increased number of wealthy people who need financial advisory and wealth management services. UBS has recognized this growing demand and established offices in these regions to capture the business of the rising number of affluent individuals. In this way, UBS hopes to expand its existing customer base and position itself for strong growth in the future. [edit] Competition As a leading wealth and asset manager, UBS competes with other firms that offer wealth management services, such as Credit Suisse Group (CS), HSBC Holdings (HBC), Citigroup (C), Deutsche Bank AG (DB), and others. Additionally, UBS shares the wealth management market with numerous local and regional firms that don't compete globally. Overall, UBS enjoys the top position in the wealth management market, with $2.13 trillion in client assets under management as of September 30, 2007.[14] As an investment bank, UBS competes with other leading firms in the industry, including Goldman Sachs Group (GS), Merrill Lynch (MER), Morgan Stanley (MS), and Deutsche Bank AG (DB), and Citigroup (C). Investment banking is a relatively new area for UBS, which started out as an asset manager. Nonetheless, the firm has risen to prominence in the industry, holding a 19% market share of the mergers and acquisitions (M&A) advisory market in the first nine months of 2007.[15] Of UBS's competitors, Credit Suisse Group (CS) is the most comparable. As a fellow Swiss firm, Credit Suisse enjoys the same benefits that Swiss banking privacy laws afford UBS and is also a leading wealth manager across the globe. Credit Suisse participates in the investment banking industry as well, coming just two slots behind UBS's number-five spot in terms of the value of its M&A in the first nine months of 2007. UBS is the larger of the two in terms of both market capitalization and total client assets, but Credit Suisse reported a 3Q2007 profit of $1.1bn[16], compared to UBS's posted loss of $710m.[17]
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