Top Three Reasons Why UBS's Investment Bank Business Is Doomed

Here are the top three reasons why BusinessInsider thinks UBS's investment banking business could be up sh*t's creek and stuck without a paddle.

1. Lack of risk management: Perhaps the most obvious is the alleged rogue trade at UBS that revealed fundamental flaws in the bank's risk management and use of internal controls. According to a report from the Wall Street Journal, UBS "said it put in place new risk-management practices, pulled back from proprietary trading and focused on a low-risk, client-driven model." It's almost unfathomable how no one, including top executives such as chief executive Gruebel and head of the investment bank Carsten Kengeter, realized there was exposure to a $2.3 billion loss.

2. Regulatory pressure: According to Robert Peston at BBC, "the Swiss government is putting intense pressure on UBS to separate or close its investment banking operations." In addition, U.S. regulators are reportedly now considering extending the proponents of the Volcker rule as part of the Dodd-Frank financial reform bill to apply to overseas firms that have operations in the U.S.

3. Lagging investment bank profitability: During the second quarter earnings call, chief executive Gruebel acknowledged many problems challenging the UBS investment bank; one of them being the decrease in trading volume that all firms will be dealing with for the foreseeable future. So far, the investment bank brought in an "unimpressive" $1.4 billion in 2011, Reuters' Felix Salmon reported. Another blow to the investment bank's profits is that the $2.3 billion trade loss "could lead UBS to report a loss for the third quarter of 2011," the firm said in its media release. Shares of UBS have tumbled since the news of the rogue trade.

Read more at http://www.businessinsider.com/three-reasons-ubss-investment-bank-business-is-doomed-2011-9