"Our balance sheet was too large and the systems of risk control and risk management that should have limited our exposure failed. We placed too much emphasis on growth and not enough on controlling risks and costs, particularly in regards to our compensation systems, performance targets and indicators and executive governance structures," the bank said today.
UBS has benefited from a special purpose vehicle, known as the Stabfund, which was created last October by the Swiss National Bank to absorb up to $39.1 billion (initially $60 billion) of the firm's toxic US and European residential and commercial-backed securities, as well as other asset-backed securities clogging its balance sheet. On December 16, 2008, UBS transferred $16.4 billion of securities positions to the Stabfund.
In addition to central bank measures, UBS said it took active steps to increase its financial stability in 2008 with the issuance of two mandatory convertible notes and a rights issue, which together raised Sfr34.6 billion of new capital.
However, looking ahead, the firm explained its balance sheet "remains exposed to illiquid and volatile markets and our earnings will therefore remain at risk for some time to come…our near-term outlook remains extremely cautious".
The week on Risk.net, July 7-13, 2018Receive this by email