Post-UBS, Mood in Swiss Banks Anxious

It has been exactly one week since the $2.3 billion rogue trading scandal rocked Swiss banking giant UBS.


The shock reverberated through the entire banking industry, knocked 10 percent off UBS

shares at one point, and continues to preoccupy bankers around Europe as they head to their offices on chilly September mornings.

Talking to numerous bankers and analysts both from UBS and other banks over the last week, the reactions I got to the loss were manifold.

There are those (primarily UBS employees) who are shocked and disappointed, fearing for their company’s reputation and future, their own bonuses and jobs. Then there are those who simply shrug it off and say: “Look - we have been here before, this is highly embarrassing for UBS, but the state of the financial markets and how it is eating into our profits is a much bigger concern to us right now”.

In a grim time like the present, there have also been plenty who enjoy a bit of light relief from joking about the loss. This trading scandal is a welcome chance to divert from one’s own dilemmas and an excellent opportunity to joke about.

If you think that Swiss bankers have no sense of humor, think again. The number of puns, posters and images poking fun at the rogue trader and Oswald Gruebel being circulated around the web is overwhelming and very creative. And yes, I admit, it’s hard not to chuckle. Especially at a poster for the new UBS movie "Liverpool Street - Trading never sleeps - But controlling does...." displaying both Gruebel and rogue trader Kweku Adoboli in smart suits in reference to the famous Wall Street movie poster.

The laughing quickly subsides though as bankers at other European banks with major trading operations think anxiously: “Could it happen to us, too?”

While the world points its finger at UBS’s, and, before them, SocGen's risk control systems for failing to catch the rogue traders, analysts at Swiss private bank Sarasin have pointed out: “Every bank faces operational risk – this is not specific to UBS or Swiss banks. It can happen to every bank”. Few people remember that Credit Suisse has had its own rogue trading incident 3 years ago. In February of 2008, the Swiss bank disclosed that a group of rogue traders at its London Canary Wharf offices had deliberately mispriced holdings of collateralized debt obligations, forcing the bank to write down the value of those assets by $2.8 billion.

German peer Deutsche Bank has been spared major rogue trading scandals so far. The bank’s chief risk officer Hugo Baenziger told German daily Handelsblatt: "Deutsche Bank has an extensive system of controls to prevent such cases (…)Over the years we were able to nip some attempts at fraud in the bud."

While beefed up risk control systems definitely help prevent rogue trading incident, the UBS, SocGen and Credit Suisse examples show they cannot guarantee they will ruled out completely.

There is a danger of complacency among banks - even those which have implemented seemingly strict risk control measures during the financial crisis. The message is: Open your eyes and ears to any suspicious actions, don't just rely on computers, as rogue traders will always find ways to outsmart control systems.