Between the end of 2004 and the first quarter of 2007, UBS's balance sheet ballooned by 41%, to $2.2 trillion—about 2.5 times the size of Merrill Lynch (MER
) or Goldman Sachs (GS
), according to Morgan Stanley.
At this point... UBS is leveraged and holding a whole lot of paper and it goes down the toilet. 2.2 trillion??
March 2008 German television does a sting at UBS..
Swiss banks with 640 billion dollars of foreign money under scrutiny with tax dodge accounts. Leading Swiss politicians and bankers reacted with outrage earlier this year when it was revealed that German intelligence had purchased confidential information on bank customers in neighboring Liechtenstein. Mirabaud said at the time that Berlin had used "Gestapo" methods to acquire the data, but later retracted his comparison to Nazi Germany's secret police.
August.. UBS has to buy back 19 billion in ARS and pay 125 million dollar fine.
Sept. UBS gets government bailout 60 billion to cover bad paper.
Oct. The central bank’s explanation for the funding operation: “The SPV will be funded by UBS with equity in the amount of 10% of the purchase price of the assets, with a maximum of $6 billion. UBS is injecting a maximum of $6 billion of equity capital by acquiring an option to purchase the special purpose vehicle after the SNB loan has been repaid in full. The agreement that the SNB will receive profits of $1 billion plus 50% of any remaining equity after full repayment of the loan is still valid.” (in francs)
Money gets repatriated to US from UBS.. 17.5 billion January
Swiss Bank pulling money from hedge funds.... probably have to get cash to return tax dodge accounts to U.S. and other European countries. The money UBS is repatriating to the US. is only 3% of the total that will likely be leaving Switzerland. UBP is one of the world's largest investors in hedge funds, with $124.5 billion in assets under management as of June 30. That amount is about 19% of the money that will have to be repatriated abroad.
So the banks took in money from foreign clients to evade taxes, the banks bought a lot of dodgy US paper, the Swiss government had to put up money to bailout the banks when they had to write down the paper. They set up an SPV to hold the paper. Also the banks had to liquidate some assets to repatriate the money from the tax dodgers.
Central bank lends UBS 6 billion and takes a 9.3% tempory stake in UBS as collateral. UBS takes this money and puts it in an SPV along with 54 billion loan from the central bank. They buy up illiquid assets from UBS which are appraised by a 3rd party. UBS has 60 billion in liquidity after moving assets to SPV. Govt expect to make a billion in profit plus has a 50% stake in the remaining assets after the loan is repaid. The report said that the gov't would make interest on the 54 million. If the assets have value, the Swiss Govt is protected. UBS stays afloat and has enough money to repatriate 17.5 billion to the US. ....
Credit Suisse declined this type of arrangement, but Swiss banks may have to move a lot of money back to the US and Europe... They may have to get more money from the government to return money. The US. portion for UBS was almost a third of what they got from the government.
So what is in the the Swiss/UBS SPV? Probably.. 19 billion worth of ARS they had to buy back and other stuff.
It looks like the the Auction rate securities and then the investigation into the foreign tax accounts is part of the Swiss/UBS "credit crisis".... 19 billion in ARS, 17.5 in repatriated money.... which is more than half of the bailout from the central bank. which leaves bad paper at 23.5 give or take for conversion...
The point here is that the UBS bailout was necessitated because of a history of corrupt practices. 1/3 of the bailout involved needing liquidity to buy up the ARS that were sold fraudulently as cash equivalents.. and the banks were supporting that market to make it liquid. When they withdrew, the market collapsed. "Massachusetts' top securities regulator, William Galvin, charged Merrill with civil fraud, claiming its auction-rate sales and trading desk "co-opted" Merrill's supposedly independent research analysts, inciting them to accentuate the positive aspects of the product to get brokers to sell them." Was UBS doing the same thing? Probably. Where was the self regulation and Chinese Wall? The other third of the bailout came from having to return tax dodge money.
So the subprime mortgage debacle was the straw that broke the camel's back and appears to be only a portion of the mismanagement of the banks.