"Dead" Secrecy: UBS at Crosshair

Services have always been difficult to pitch because of the sheer fact that quality for them is difficult to measure due to their intangibility. So at times it boils down to the order of priority and the relativity of what one refers to as outstanding quality. Banking is an industry which has been fiercely competitive in this area, offering a bundle of services that competitors do not. So what sets apart a bank and a particular banking system are the critical unique differentiators.

At the pinnacle of this in the banking world sit the Swiss banks due to the code of secrecy that they stick to, bestowed upon them by the softer norms in the Swiss banking system. Secrecy is why the Swiss banking system has always stood apart and has managed to beat even the likes of Cayman Islands. But this very foundation of the Swiss Banking system is jittery now as US Tax authorities have demanded UBS to release the names of 52000 Americans who are suspected of opening secret accounts to evade taxes. UBS needs business in US right now and it cannot turn a deaf year to the US Tax authorities and has thus agreed to release 250 names.

But the earth shattering repercussion for this will be that UBS will have a chink in the armour and there will be no further reason for customers to do business with Swiss banks. Secrecy is their business and if it goes away then it will take the entire Swiss banking system with it. What surfaces will be a whole lot of chaos for the Swiss banks and unimaginable volume of business for the banks in the Cayman Islands.

Posted by: Rahul

Ten Surprises for 2009

In a collaborative effort between Global Equity Strategy and Global Asset Allocation, and in keeping with their year-end tradition, UBS presented in their final publication of 2008 a list of ten possible ‘surprises’ for the coming year. Its aim is to identify plausible scenarios, representing risks—up or down—to investor consensus thinking, and in some cases, to its own views.

UBS' list of ‘surprises’ include:

1) Corporate default rates don’t rise significantly;

2) Oil prices fall below $20 per barrel;

3) The dollar falls to new lifetime lows;

4) Breakeven inflation rates remain near zero;

5) Global growth is negative for 2009;

6) The Fed purchases corporate credit;

7) Emerging markets regain parity valuations;

8) Equity ‘fallen angels’ soar;

9) Obama pushes for a ‘tax holiday’; and,

10) Gold goes to $300.

Perhaps next year the surprises will be somewhat more positive? Who knows! Now let us take a look at their last years' surprises (predictions) and compare their conjectures to actual outcomes.

1) Global growth surprises on the upside: Did it happen? No.

2) Oil prices: Is 50 the new 20? Did it happen? Yes.

3) The dollar appreciates: Did it happen? Yes.

4) World trade clouds: Did it happen? Sort of.

5) Developed deflation, developing inflation: Did it happen? No.

6) Financials outperform: Did it happen? No.

7) Emerging equity markets under-perform: Did it happen? Yes.

8) Japanese equities outperform: Did it happen? It depends.

9) Equity volatility settles at lower levels: Did it happen? No.

10) Chinese inflation falls sharply: Did it happen? Yes.

With a success ratio of 40% in their last year's predictions it attests that this exercise has merit. At least it can provide an avenue for 'out of the box' thinking which can aid risk management. But, still I'm stunned that there's been no hint at the subprime crisis - how come they miss that? Whether their predictions hold good or live upto its own benchmark is a question that only time can answer. Let's wait and watch!!

Posted By: Anirban Dutta