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7/29/2019 News for Banks
1/20
There will be much to discuss at SIBOS
2008. Last year, the banking industry was
gaining momentum. This year, it is rebuild-
ing trust. There is no more important task.
As no bank is an island, the first step to-
wards bolstering our industrys credibility
is to restore trust between financial insti-
tutions. This is more than a matter of re-
furbishing balance sheets. It is about build-
ing confidence in the financial system by
strengthening its operational infrastruc-
ture. And it involves overhauling the com-
plex web of institutional relationships thatmake that infrastructure function.
Network management has a vital part
to play in that agenda. In this SIBOS edi-
tion of News for Banks, we show (on pag-
es 5 6) how we have fine-tuned our own
approach to relationship management to
get a more integrated picture of our coun-
terparties. We believe that our efforts will
result in additional opportunities for both
ourselves and the institutions we do busi-
ness with. Meanwhile, we continue to in-
vest in our platform. Offshoring is often
sold simply as a response to cost pressuresbut we prefer to see our service centres in
India and Poland as sources of fresh talent
(pages 10 11). For us, the ultimate meas-
ure of success in offshoring lies in how
far we can hone our effectiveness and, of
course, pass on the benefits to our busi-
ness partners.
Adroit use of technology can also help
to build confidence. In the back office,
better reporting systems (see pages 7 8)
could reduce the scope for errors and mis-
trust. In the front office, an innovative
approach to delivering equity structured
products lets advisors create the exact
solution that their client is looking for
(pages 1617). Certain solutions, though,
continue to build on tradition. Our annual
seminar for partner banks (pages 1213)
is now in its thirty-first year. In a time of
upheaval, I like to think that such events
help to forge the trust that will underpin
our industrys recovery.
Rebuilding trust
2 Network management
The future of custody; the network
reloaded; and real-time reporting
9 Analysts in action
Research feeds into products
10Talent-spotter
How UBS went offshoring
12Cloudy outlook
The view from Wolfsberg
14Reserves seminarWhere central bankers convene
15Blue sea thought
Indexing the worlds sea freight
16Made to measure
Bespoke structured products
18In brief
News from around the world
Stephan ZimmermannChief Operations OfficerUBS Global Wealth Management &Business Banking
News for BanksUBS Newsletter for Banks and Financial Institutions Autumn 2008
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2 UBS News for Banks / Autumn 2008
Network management
The custodial challengeConsolidation and proliferating business lines are reshaping the custody sector,say industry experts from Thomas Murray, a ratings and information consultancy
The words paradigm shift should be
applied only to a science or an industrythat is undergoing radical change. That
could now be the case in the custody sec-
tor. Institutional investors are adopting
new techniques and products, prompting
custodians to embrace completely new
business lines. The implications for net-
work managers at custodial banks are pro-
found. New skills and organizational struc-
tures are required. New channels need to
be opened and new relationships forged
if banks are to succeed in this new era of
competition. There are certainly risks for
custodians in this new world but, by thesame token, there are considerable oppor-
tunities for institutions that can get their
service offering right.
Casting the network wider: custodians are well placed to expand their service offering
Banks operate via a network when they
do not perform the operation themselves.Effectively, this is a form of outsourcing.
Banks offering a global service almost al-
ways outsource some functions; nobody
can do everything, everywhere. The
traditional functions that are outsourced
include cash clearing (also called corre-
spondent banking) and custody. In coun-
tries where a global bank has too small a
footprint to justify a self-clearing operation
via a branch or subsidiary, it opts to use
the services of a local provider. There are
therefore buyers (for instance the global
custodians) and sellers (the domestic agentbanks). Naturally, the buyer seeks the best
quality at the cheapest price, while the
seller seeks to maximize revenue and
mitigate risk. This can give rise to tensions
between the global custodians, as buyers
of services, and the local agent banks,as providers. Owing to the global nature
of banking, banks are both sellers and
buyers a Swiss bank could be a buyer of
services in Uruguay and a seller of services
in Switzerland. Banks often negotiate
services reciprocally I will buy your service
if you will buy mine but this may not
always make for the best solution.
Managing the network
The business of network management
grew out of these diverse relationships.
To provide services, global banks aredependent on third-party providers. Tradi-
tionally, network management consisted in
conducting due diligence surveys of third-
party providers and negotiating fee scales.
7/29/2019 News for Banks
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3UBS News for Banks / Autumn 2008
Network managers spent their time
flying round the world carrying out due
diligence. Network management in thisguise is essentially a cost centre. The real
benefits only arrived when global banks
started to leverage their network by
booking business from multiple locations.
The same network could then support
business originating from all the major
financial centres in the US, Europe and
Asia Pacific.
Growing cash, securities and FX flows
increase the value of the global network.
The institutions that carry these flows have
significant placing power in the money
markets or in stock lending, for example.This value attaches to the network, so
it is no longer a cost centre but a major
enabler and, if properly utilized, a signifi-
cant revenue generator. Global networks
are now valuable components of the bank
that complement existing business lines
or create new ones.
Trends and drivers
Europes single currency started a period
of consolidation in network relationships.
Banks could appoint a single counterparty
for their euro cash clearing, instead ofone for each national currency. For a time,
banks still had to worry about which cen-
tral bank held their counterpartys funds
but the advent of Target 2 for Cash has
made this issue less relevant. Monetary
union in other parts of the world lies fur-
ther ahead and will probably not play a
part in custody sector consolidation over
the medium term.
In tandem, infrastructure consolidation
will continue to move ahead at a steady
pace. One of the roles of the custodian,
either as a domestic agent bank or as a
global provider, is to mitigate the risk that
resides at the central securities depository
(CSD) level. One of the major risks is deal-
ing with the wide variety of CSDs in
Europe.If procedures, tax and legal arrange-
ments were harmonized across all the
CSDs, then a major component of this risk
would fall away. This provides a considera-
ble incentive to consolidate Europes CSDs.
However, no roadmap yet exists. As one
pointer to the future, Euroclear has re-
cently announced the acquisition of Nor-
dic Central Securities Depository (NCSD).
In another move, seven CSDs outside the
Euroclear group have also recently an-
nounced the Link-Up Markets, a central
facility to allow interoperability betweenthem. All CSDs in the Eurozone were
obliged to decide by July 4, 2008 whether
to remain independent or support the
European Central Banks Target 2 for
Securities (T2S) initiative which envisages
a consolidation of all settlement across
the Eurozone.
Euroclear has positioned itself as a new
competitor in this business. It is offering an
alternative to the traditional agent banks,leveraging the CSDs in its group to provide
settlement and asset servicing from its
single CSD platform. Euroclear is attempt-
ing to disintermediate the agent banks in
Europe. Some are fighting back; others
are beginning to accept the inevitable. The
recent sale of NCSD to Euroclear by the
Swedish banks will have a dramatic impact
on their domestic custody business. As
Euroclear will probably seek to disinterme-
diate the local agent banks in Sweden and
Finland, the sale of NCSD is a better way
of extracting value from the business thanif the European Central Bank were to na-
tionalize it away via T2S. Since custodians
provide access to infrastructure, custodians
will have to reshape themselves as the in-
frastructure itself consolidates.
The pursuit of alpha is a further chal-
lenge for the custody business. To sup-
plement long-only products, investors are
moving into an ever-wider range of prod-
ucts and asset classes. As a result, cash
custodians now have to deal with ex-
change traded derivatives, OTC derivatives,
private equity, property, and commodities.At the same time, new strategies such as
130/30 require custodians to account for
and value short positions, sometimes us-
ing systems that were explicitly designed
to prevent short positions even arising.
Worse still, the large institutions that used
to buy hedge fund units are now starting
Custodians will have toreshape themselves as theinfrastructure consolidates
Network management evolves from cost centre to enabler
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4 UBS News for Banks / Autumn 2008
to replicate hedge fund strategies, so that
they can control the associated risks them-
selves. In this way, asset managers are
behaving increasingly like investment
banks. As they do so, they demand from
their counterparties the kind of support
that was previously provided to traders.
The new paradigm
To plug the gaps in custodian service pro-
visions, institutions have signed up with
prime brokers. But this solution carries its
own risks, given that the institution is now
doing business with an investment bank
rather than a custodial institution. The cus-
todians need to win back the business lost
to the prime brokers but they can only do
this by offering a full range of services
including middle office trade processing
and risk management, pricing and valua-tion of complex derivatives including inte-
grated collateral management and full
administrative support for short positions.
All these new requirements take custodi-
ans into new territory. As with the tradi-
tional cash and custody services, where
they have no in-house capability, the cus-
todians will need to outsource the solu-
tion. However, outsourcing the solution for
exchange traded derivatives, or OTC deriv-atives or other complex products, requires
a new type of network management. New
channels need to be opened to allow the
custodians to win the business back from
the prime brokers.
One such business is that of hedge
funds. These are major drivers of trading
volumes and there are significant revenues
to be made from meeting their service re-
quirements. However, there can also be
significant risks when dealing with hedge
funds. The custodian community has tradi-
tionally steered clear of such risks but theprime brokers have been cunning in struc-
turing their product offering to provide
low-risk solutions (see chart).
Notice that the up and down arrows
in the chart cancel each other out across
the product offerings thereby eliminating
market risk. This is how the prime brokers
have been able to service the hedge funds
without incurring excessive risk for them-
selves. However, this structure is only pos-
sible if the prime broker operates in all the
product lines custody, derivatives and
collateral management. If the service pro-vider operates in only one of these prod-
uct lines or if it processes equity products
in a separate silo to fixed income products,
then it will not be able to structure these
flow trades. As more and more institu-
tional investors (pension funds, insurance
companies and so on) begin to emulate
the strategies of hedge funds in pursuit of
alpha, then those that cannot offer the full
range will lose business to those that can.Clearly custodians can provide securi-
ties lending through their traditional net-
works. What they are lacking is the asset
swap capability supported by the deriva-
tives stream and quite often the repo
capability provided by the collateral man-
agement stream. These streams re-
quire new channels to be opened by
the network management teams of the
custodian.
Fortunately, this challenge may not be
as difficult as it seems. Custodians are very
adept at operating through the traditionalinfrastructures, be they central counter-
party clearing houses (CCPs) or CSDs. This
is a familiar world. The new OTC deriv-
ative products are beginning to mature
and adopt infrastructure models similar to
those found in the traditional cash mar-
kets. As nobody would contemplate set-
tling the high volume of securities traded
at an exchange on a bilateral basis, every-
body settles on a multilateral basis via a
CSD. The same is becoming commonplace
in the world of OTC derivatives. There are
a number of third-party solutions for theOTC derivatives world that provide services
essentially similar to those of a CSD. How-
ever, these solutions have been designed
by investment banks for investment banks.
If the custodians are to join the party,
therefore, their network managers need to
lead the charge by opening up these new
channels for their banks.
The new channels mean that the tradi-
tional arrangement of cash and securities
networks combined as transaction bank-
ing will be replaced by the new paradigm
of separate networks for each of the prod-uct lines and asset classes. If the custodian
bank can then provide an integrated solu-
tion across all these products, it becomes
impossible to lift individual solutions out
and sell them off as Deutsche Bank or
Nordea have done. Custody and its net-
work management cease to be a monoline
business and truly embrace the complexity
that their customers demand.
Thomas MurraySimon Thomas CEO & Chief Rating Officer
Tim Reucroft Director of [email protected]
New channels need to beopened to allow the custodi-ans to win the business backfrom the prime brokers
Chart: Controlling the risks
Source: Thomas Murrray
Typical transaction ows between hedge fund and prime broker
Securities Lender
Custody
Cash
Equity
Repo Trader
Collateral Management
Cash
Bond
Asset Swap
Derivatives
Bond
Equity
7/29/2019 News for Banks
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5UBS News for Banks / Autumn 2008
Network management
The network reloadedEveryone benefits when network managers take an all-in view ofcounterparty banks, argues Martin Steinbach, UBSs head of global servicesfor financial institutions
In your view, what are the main issues
facing network managers today?
Steinbach: The biggest challenge hasntchanged. It consists in striking the right
balance between managing relationships
and getting the best service for your bank.
On one hand, you may want to give a cer-
tain bank a contract because they might
be in a position to reward you with other
business. On the other, your own opera-
tions and product units just want to sign
up the best-in-class providers. A second
challenge is quite simply to find the best-
in-class provider.
Why is that?Detailed due diligence is labour-intensive
both for ourselves and our service provid-
ers. Making the process as efficient and
cost-effective as possible is a major head-
Martin Steinbach: we strive to take a holistic view of each relationship
ache for all network managers. As can be
the diplomatic issues arising from service
reviews.
How important are cost considerations
in counterparty reviews?
Clearly cost pressures are bearing down
heavily on the whole sector. Banks have
responded by concentrating their business
with fewer service providers. In return for
funnelling more business through those
providers, they negotiate keener pricing.
This process is quite similar to what the
auto industry did some decades ago. Fol-
lowing Japanese practice, car makers cut
the number of their component suppliersbut deepened their interdependency on
the chosen few that remained. The proc-
ess started later in banking, but the trend
is clear. This consolidation is most dramatic
on the cash clearing side. In the past,
banks tended to open cash accounts fairly
indiscriminately, just to please a counter-party. But those days are over. At UBS,
cash clearing in most major currencies is
already centralized, as is much of our cash
management. And wed like to get an
even better overview of our cash accounts
and balances round the world.
What about custody?
Custody has always been a more concen-
trated sector than cash, owing to its com-
plexity and capital intensity. In addition,
UBS started to consolidate its custody
activities quite early, when we startedworking with the infrastructure-type enti-
ties such as SIS (now Swiss Financial Mar-
ket Services) and Euroclear, the European
settlement system for securities transac-
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6 UBS News for Banks / Autumn 2008
tions. And were consolidating further,
now that we take a group-wide approach
to network management.
Speaking of a group-wide approach,
how has network management
changed at UBS to deal with the
trends you mention?
I would say that network management
has become a discipline in its own right.
A key step forward was the start-up of a
commercial services group within our in-
vestment bank. This unit has the man-date to negotiate the best possible prices
and terms for cash and custody services.
Effectively, this is a purchasing depart-
ment. Manufacturing companies have al-
ways seen purchasing as a key function,
but bankers have taken longer to adopt
that mind-set. More recently, we set up a
central committee to coordinate cash and
custody relationships across all our busi-
ness activities wealth management and
business banking, investment banking,
and asset management. Before we go into
a particular market, we try to harmonizeour requirements across all our business
groups so that we can present a common
negotiating stance on terms and pricing.
The economic benefits can be considera-
ble, amounting to several million dollars in
just one recent instance.
Thats good, but whats in it for your
counterparties?
I think everyone benefits when a business
relationship goes forward on a more ob-
jective, professional footing. On our side,
we seek to provide the right informa-tion for reviews and to base all decisions
on the appropriate indicators. Yes, were
tough negotiators and, as a service pro-
vider ourselves, we experience exactly the
same from our counterparties. But, once
a relationship is established, we can of-
fer transaction volumes that are more than
worthwhile.
If the benefits are so clear, why did
it take so long to set up a group-wide
approach to network management?
There was informal collaboration and con-
sultation across our business groups long
before we established the group-wide net-
work management committee. But the
decision to move to a more formal struc-ture could not be taken lightly. One rea-
son is that a centralized approach to net-
work management involves certain costs.
If a business unit negotiates a mandate in-
dependently, it can move faster and might
even get a service package that is more
closely tailored to its particular needs. So
coordination involves compromise. Human
factors are also significant. Centrally coor-
dinated network management is not wide-
spread in our industry. So people have to
be educated to accept it.
Id imagine that centralized decision-
making leans heavily on information
management
Exactly so. On the sell side, we get a lot
of information from our customer relation-
ship management system. Capturing
transactions on the buy side and tracking
what we pay in fees is more difficult. Thats
because the data sources are more dispa-
rate and depend more on manual proc-
esses. The exception is cash clearing, at
least in our main currencies, where we
have an electronic data feed and know ex-actly what our outgoings are. The upshot
is that, where we previously had a buy
view and a sell view of a particular
counterparty, we can now get a more inte-
grated picture. And this helps us improve
the overall relationship.
A final question how does centralized
network management fit into UBSs
The Bank for Banks concept?
Network management focuses on cash
and custody relationships, while The
Bank for Banks covers the entirety of ourrelationships with other institutions, in-
cluding everything from corporate finance
to fund management (see box). The com-
mon element is that we strive to take a
holistic view of each relationship. We see
this as the best way to find synergies be-
tween ourselves and partner banks, result-
ing in more intensive discussions and op-
portunities for growth.
Martin Hood News for [email protected]
About the Bank for Banks
UBS. The Bank for Banks provides
financial institutions with a wide range
of modular services that draw on the
expertise of all UBSs business groups.
At present, these services are grouped
into six streams comprising cash/
currency, securities, asset management,
private banking, corporate finance, and
trade and export finance. The serviceoffering is delivered through market-
ing hubs in Switzerland, New York, and
Hong Kong.
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7UBS News for Banks / Autumn 2008
Network management
The real-time advantageHow improved reporting standards could allay liquidity fears andcut systemic risk
Trust is in short supply in todays finan-
cial markets. The trouble in this hypothe-
tical case started when a bank sent a
multi-billion payment order to its cashclearing provider. The payment was due
to a central bank as part of a repurchase
agreement. Unfortunately, the banks
account had insufficient funds, leading
the clearer to queue the payment order
in its risk system. A series of inbound
payments funding the account were re-
ceived during the day, but not enough to
release the payment.
Client bank and clearer were in frequent
contact throughout the day and, a few
minutes before market close, they agreed
that a partial payment would be releasedto the central bank taking the banks
overdraft with the clearer to its limit. Late
in the business day, the central bank, ob-
viously nervous about the well-publicized
When the clock is ticking, it helps to have an instant overview of your positions
subprime exposures of the originating
bank, raised questions about the partial
payment and threatened to exclude the
originating bank from the next days repoauction a move that might awkwardly
crimp its funding activities. Unless, that is,
the clearer could confirm that the problem
was operational and not caused by liquid-
ity constraints. Finally, the central bank
extended the payment deadline for the
remaining amount to early next morning
which, again, put the onus on the clearer.
Decision time
Later that evening, the clearers manage-
ment bit the bullet. They decided to make
the required payment, even though thisresulted in a very significant additional
credit exposure. Not to do so, they judged,
might endanger their client and create
knock-on effects throughout the market.
Later the next day, however, the issue
resolved itself quietly when the client bank
reconciled its accounts and discovered
two funding payments that had failed toarrive on the value date.
This story shows how fall-out from the
credit crisis can ripple through to the op-
erations areas of commercial banks. We
now ask what mitigating actions could
have been taken in the above case. Lastly,
we take a look at how such risks might be
contained in future through technical im-
provements. The incident described above
shows that, when banks have little trust in
each other, a relatively trivial break-down
in the funding process could cause a po-
tentially fatal chain reaction. Further, thatoperational processes are typically not
robust enough to withstand a temporary
lack of liquidity in a nervous market envi-
ronment. Two observations stand out:
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8 UBS News for Banks / Autumn 2008
Process fragmentation along the
liquidity/settlement chain deprives
management of an end-to-end view
(eg funding activities are not reconciled
in time with actual settlement of fund-
ing transactions).
Information is lacking on the actual
status of a transaction at every point in
the value chain.
What is causing these two issues and why
have they not been better addressed?When seeking answers, its useful to take
a holistic view of the settlement value
chain. The first problem is silo thinking.
Organizations tend to be fragmented
along the value chain for the more effi-
cient division of labour. For example, the
cash management team reports positions
to the trading floor where funding trans-
actions are executed. These are in turn
settled by a settlements team. In return
for economies of scale, the organiza-
tion gives up a big-picture overview of the
front-to-back process, smooth informa-tion flow between different parts of the
organization and optimal use of available
information.
A second challenge is infrastructure
complexity. Most banks operate complex
legacy infrastructures. Yet systems need to
be able to exchange information interac-
tively along the entire value chain.
The problem is compounded by an his-
torical lack of universal interbank reporting
standards. Until recently, at least, banks
had no interbank reporting standard that
could fulfil all their needs regarding infor-mation content, timing and delivery chan-
nel. Existing reporting standards either
lacked specific information or allowed too
much variation in the interpretation of the
standards or were not fully interactive.
Then there are the vested interests.
Clearers can and do benefit when less-
than-transparent reporting of cash posi-
tions prevents their clients from manag-
ing their balances effectively. The resulting
free balances generate interest revenues
for the clearing institution. Such incen-
tives may somewhat mute the clamour formore transparent and comprehensive
reporting solutions.
Nevertheless, a number of measures are
available that could help to resolve the is-
sues of process fragmentation and insuffi-
cient information. Reporting solutions are
prominent among them. In the case dis-
cussed above, the client bank could not
see whether funding payments had actu-
ally been received on his nostro account
and only learned the true position one
day later, when reconciling the end-of-
previous-day account statement. Intradayaccount reporting that included transac-
tion details would have filled in this infor-
mation gap.
The chart (below) provides an overview
of the most commonly available reporting
solutions. Within the banking world,
SWIFT is the standard for most settlement-
related reporting. Proprietary e-banking
type solutions may provide more integra-
tion along the value chain but not neces-
sarily the depth of integration required to
interoperate effectively with the systems of
client banks. Depending on the numberof nostro relationships, a proprietary
reporting solution may not be effective un-
less it is capable of integrating information
from various providers.
In some areas, industry utilities have
carved out a space as providers of business
process outsourcing services that include
related reporting such as trade confirma-
tion matching. The drawback to most of
these solutions is that they focus narrowly
on a specific element in the settlement
value chain and therefore may not meet
client needs in all three reporting dimen-sions, namely information content, timing,
and channel.
Solutions
In our opinion, one solution to watch is
SWIFTNet Cash Reporting. This is the first
format to provide an interbank reporting
standard that spans the entire settlement
value chain, is interactive and capable of
carrying all the required information. On
both the supply and demand side, the
take-up of SWIFTNet Cash Reporting has
been relatively slow so far. This reflects thesignificant infrastructure investment and
system integration that are required to
fully exploit its benefits.
On the supply side, the challenge is two-
fold. First, there is the considerable techni-
cal challenge of collecting all transaction-
related information across various business
lines and making it available through a sin-
gle channel. Then there is the commercial
headache involved in giving up the bene-
fits of todays less-than-fully transparent
reporting in exchange for potential future
market differentiation and client gratitude.On the demand side, the challenge con-
sists mainly in the required infrastructure
investment. That said, systemic stresses,
as seen in our case study above, suggest
that real-time cash reporting is soon likely
to win a growing volume of support across
the industry. As always, the market will
decide.
Ties TiessenUBS Global Wealth Management &Business Banking, Cash Custody Solutions
Systems need to be ableto exchange informationinteractively alongthe entire value chain
Chart: The road to real time
Source: UBS
Overview of reporting solutions
TradeExecution &Capture
TransactionProcessing &Enrichment
CashManagement
Funding &CollateralManagement
Settlement& PaymentExecution
NostroReconciliation
Investigations& ClaimsManagement
Channel
SWIFTNet Accord
Timing
Content/Format
SWIFTMT941/942
Misys Treasury
Traiana
GTSS
FXALL Settle-ment Center
SWIFTNet E&I
SWIFTMT900/910/942
SWIFTMT940/942/950
SWIFTNet E&I
SWIFTNet Cash Reporting
Integrated proprietary e-banking solutions
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Research
Less carbon, similar return
Launched in March, the UBS Europe
Carbon Optimized Index contains the
same 600 companies as its benchmark,the DJ Stoxx 600 Index. It matches the
benchmarks sector weightings, but
overweights carbon-efficient companies
and underweights the carbon-ineffi-
cient ones, based on data from Trucost,
an environmental research organiza-
tion. The carbon footprint of the index
is therefore 3040% lower than the
benchmarks but offers similar returns.
The index thus offers an alternative to
existing green investments that ei-
ther use a negative screening process
(excluding high-carbon sectors suchas oil and gas altogether) or focus on
solution providers such as alternative
energy companies.
New directionsResearch is more than ever a source of competitive advantage and new products
Sometimes traditions can mask radical
upheavals. Market observers might have
concluded that nothing had changed
when the 2008 Thomson Extel Survey
named UBS as the top Pan-European Bro-kerage Firm for Equity and Equity-Linked
Research for an eighth consecutive year.
But they would be mistaken. Over the past
decade, the securities research business
has been through wrenching overhauls to
its regulatory and compliance regime, as
well as its economic model.
The way sell-side research is done may
have changed, but its importance is grow-
ing as clients demand increasingly custom-
ized investment solutions. Indeed, fund
managers continue to rely on broker re-
search to a greater extent than commonlyacknowledged. Getting the answers to
their questions still depends on deep
industry knowledge, backed by access
to corporate management, sector exper-
tise and contacts. The research business
is polarizing. On one hand, the number
of specialized boutiques is growing fast.
On the other, the large research depart-
ments maintained by the major investment
banks are gaining increasing prominence
as idea factories.
With 600 analysts, associates, strategists
and economists covering companies thatrepresent more than 90% of total global
market capitalization, UBS views research
as a key source of competitive advantage
for its clients. Coverage is global and cross-
Research contributed to UBSs new European carbon-optimized stock index
asset, serving the needs of a wide range
of client institutions including traditional
money managers, hedge funds, pension
funds, insurance companies, and sover-
eign wealth funds. The banks teams haveproduced many high-impact studies within
the past year, including George Magnuss
widely publicized work on the Minsky
moment (see News for Banks, Summer
2008 edition) and several studies on food
prices and inflation.
In keeping with the industry trend to-
wards differentiated thinking, UBS re-
searchers have launched a Global Bearreport, which is a fortnightly selection of
sell-rated ideas from analysts around the
world.
Complex issues
Meanwhile, the Q-Series covers complex
issues that affect investment decisions. A
recent study looked at the marginal cost of
oil production, helping investors to identify
where the floor for oil prices might lie.
Research does not stop with research.
UBS analysts have also collaborated with
the banks derivatives experts to launcha number of research-driven structured
products that include the Constant Matu-
rity Commodities Index (CMCI), an innova-
tive index product that addresses irritants
such as volatility and roll yield. (See News
for Banks, Autumn 2007 edition.) Another
research-backed product, the Europe Car-
bon Optimized Index (see box), caters to
increasing investor concerns about climate
change. The research business has come a
long way in eight years, but UBSs inten-
sive focus on clients and ideas remains a
constant.
Mark Steinert UBS Investment BankGlobal Head of Equity [email protected]
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Offshoring
The talents of two citiesHow UBS went to Hyderabad and Krakow and found what it was looking for
Offshoring is about tapping into new
sources of skill and talent. When UBSopened its India Service Centre (ISC) at
Hyderabad in 2006, a single newspaper
advertisement attracted some 15,000 job
applications in just the first week. In the
early stages, the recruitment and selection
team dealt with this challenge by inter-
viewing first-round candidates en masse
over selected weekends. One surprise
was that parents sometimes accompanied
their grown-up offspring to the interview.
In India, the familys opinion of a future
employer counts. Up to 100 people per
month were hired, with the result thatthe ISC is now up to almost 1,900 full-
time UBS employees who are active in a
number of roles, from IT infrastructure
through securities research.
UBS in Poland: offshoring is more about tapping into new sources of skill than cutting costs
Several general trends are highlighted
by UBSs first centrally coordinated ventureinto offshoring which can be defined as
the transfer of business processes to a pro-
vider located outside a firms home coun-
try, typically in a location with surplus
talent. This is an important point. Lower
costs are still a motivating factor for off-
shoring ventures, but, these days, criteria
such as access to skills and talent, as well
as higher efficiency, have moved to the
forefront when companies decide to move
activities offshore.
Knowledge processingA second trend is that offshoring is no
longer just about IT. The range of activi-
ties now regularly offshored encompasses
both business and knowledge processes,
from complex processing to analytics and
research. The former category, known asbusiness process offshoring (BPO), com-
prises specific business tasks that often
involve executing either complex or stand-
ardized processes. Sample BPO functions
include back-office work, billing, purchas-
ing, payments processing, trade finance
operations, and payroll administration.
BPOs more advanced sister, knowledge
process offshoring (KPO), consists of
processes that demand research, judg-
ment, analysis and decision-making skills.
Sample KPO work includes management
information system (MIS) reporting, busi-ness research, financial modelling, and
product design. As the banking industry
is heavily impacted by knowledge-based
economies and their workers, offshoring
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11UBS News for Banks / Autumn 2008
becomes an increasingly important re-
source for the sector.
Would-be offshorers have an increas-ingly wide range of destinations to con-
sider. While India and offshoring were
once almost synonymous, other countries
have made headway in marketing their
attractions. China, the Philippines, Roma-
nia, Malaysia, and others now vie for the
jobs and investments that offshoring con-
tracts bring.
The UBS offshoring story started in
2005, when the companys group exec-
utive board decided on a multi-hub ap-
proach. It created a Group Offshoring unit
in its Corporate Center to coordinate thebuilding of wholly owned offshoring sub-
sidiaries known as captives. The team
would also work with the banks three
business groups to select and move func-
tions to these centres. After an extensive
economic and risk-based selection process,
the core project team selected India as the
first location. The UBS India Service Cen-
tre (ISC) at Hyderabad, a city with a pop-
ulation of 7 million on the Deccan Plain,
was completed in a bare nine months and
opened its doors in March 2006.
Client benefits
The Hyderabad centre supports UBS busi-
ness units worldwide by providing both
knowledge and business processes that
range from research on single securities to
the processing of over-the-counter deriv-
atives for institutional clients. It also hosts
a cohort of IT infrastructure specialists as
part of a global hub arrangement. Bene-
fiting from the experience of other west-
ern firms in India such as McKinsey, UBSs
Group Offshoring unit has developed ge-
neric services such as presentation prep-aration, creative design, and web page
development that can be used on a pay-
as-you-go basis by business units world-
wide. This saves time, as well as money
that might otherwise go to external agen-
cies and consultancies.
Building on its successful experiencein Hyderabad, the UBS offshoring team
next identified a need for a captive in cen-
tral Europe. The location was mandated
here by the need for staff fluent in Ger-
man and French among other European
languages.
With the asset management units
fund services business as launch user, the
group executive board approved the cre-
ation of a Poland Service Centre (PSC) in
Krakow on February 7, 2007. The project
team selected Poland because it possesses
the largest working population in CentralEurope, as well as one of the youngest.
With half the population under the age
of 34, and 2 million students enrolled
at university, Poland produces almost
400,000 graduates per year from 126
institutes of higher education, including
35 universities. Already operational and
opening officially in the course of 2008,
the PSC will support some 250 job roles.
Like its Indian sister, it supports a number
of business and knowledge-based func-
tions and will carry out typical back-office
activities.UBS has brought home a number of
lessons from its offshoring journey. First,
the human resources function has to
be robust in all areas if it is to weather
the frenetic dynamics of some offshore
labour markets. Recruitment, on-boarding,
and retention all need to be thoroughly
proven. Secondly, culture counts. Inevi-table frictions are greatly mitigated by
better cultural understanding and integra-
tion. Culture implies not only adjusting to
different national cultures, but also the in-
tegration of new service centre employees
into the firms own culture. At UBS, the
challenge has been to integrate across cul-
tures Indian, Polish, American, British,
Swiss while also accommodating the
very different business cultures of the in-
vestment bank, wealth management, and
asset management arms. Thirdly, firm-wide
metrics need to be developed that gobeyond mere headcount numbers and
savings and take account of the qualita-
tive and long-term benefits of offshoring.
Ultimately, the primary measure of suc-
cess in offshoring is how far the company
can hone its efficiency and effectiveness
and, of course, pass on these benefits to
its clientele.
Kevin D. StringerUBS Corporate Center, Group [email protected]
The primary measureof success is how far thecompany can hone itseffectiveness and pass onthe benefit to its clients
Building on success in Krakow
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Conferences
Outlook cloudyRecovery from the banking and credit crisis willtake years, warned George Magnus at this yearsInternational Banking Seminar
Continuity: Wolfsberg has been home to IBASEM for thirty-one years
Low stratus obscured the sun on the
first day of IBASEM 2008 (see box). The
sombre skies provided a suitable backdrop
for George Magnuss economic outlook,
which headed up the days programme.
If the current crisis were just about
liquidity, we would have sorted it by now,
said UBSs senior economic advisor. But
doubts about solvency as well as liquidityare now stalking the financial sector, as
they did during Americas savings and
loan imbroglio and Japans more recent
banking crisis.
The bad news is that the path to recov-
ery will be protracted. This is no short,
sharp shock, like the 1998 Asia crisis or
the post-2001 slump. As markets shrink
from providing the credit needed to allevi-
ate the downturn and keep troubled lend-
ers in business, governments and central
banks are stepping in to prevent a vicious
circle of deleveraging and damage to thereal economy. By effectively nationalizing
the securities repo market, the Fed is doing
a great job of preventing such a melt-
down, Magnus said.
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Despite these efforts, growth rates
are set to suffer. During the last years of
the boom, some 40% of Americas GDP
growth came from FIRE, an acronym en-
compassing finance, insurance, and real
estate sectors that are now out for the
count. In Britain, FIRE may have burnedan even bigger hole, having accounted for
more than half of the UKs GDP growth
in recent years.
Mind the gap
If the developed economies sneeze,
who will catch a cold? Skeptical that de-
coupling will save the global economy,
Magnus expects growth to slow also in
emerging economies. With output gaps
widening in most of those countries, in-
flation is also shaping up as a global af-
fliction. Supply shortages are not the onlyreason for price rises; monetary expansion
is also a significant factor, in both the de-
veloped and developing world. That is not
to say, however, that the policy response
should be the same everywhere. Ideally,
the developing world should tighten to
keep already rampant inflation within
check. By contrast, the developed countries
should keep the monetary spigot open, to
ease the strain on their shell-shocked
financial systems. The good news for the
US and the UK is that accelerating inflation
rarely, if ever, follows a banking crisis.All this raises the question of how the
banking crisis itself will play out. The Scan-
dinavian experience of the early 1990s
provides a few hints, Magnus believes.
Benchmark eventIBASEM is the International Banking Seminar, an annual event for clients of
UBS. The Bank for Banks. The 2008 iteration took place from May 19 22 at
Wolfsberg, Switzerland. Some thirty delegates converged on the rural canton of
Thurgau from banks as far afield as the US, China, Vietnam, and almost everywhere
in between. This year, participants heard presentations on a wide range of topics
in banking and economics. Like many of their predecessors, they also took time out
to visit the nearby Rhine Falls. Much water has flowed over those celebrated
cascades since the first IBASEM convened thirty-one years ago. Meanwhile, the price
of a barrel of oil has risen from less than $15 to more than $120. But some things
remain the same. IBASEM is still a pre-eminent venue for exchanging ideas and
views and simply getting to know people better.
George Magnus issues FIRE warning
House prices declined by one-quarter in
Sweden and almost one half in Finland,
peak to trough. Equity markets lost evenmore, while GDP contracted by almost 8%
in Finland and by roughly 2% in Sweden
and Norway, peak to trough. It then took
about four years to rebuild personal sav-
ings. Restoring the banking sector to rude
good health required a few more years.
The upshot, concludes Magnus, is that
a Japan-style lost decade can probably be
averted. That said, the effects of the crisis
itself and the associated regulatory back-
lash could be long-lasting. And the US and
European financial systems will achieve a
Scandinavian-style resolution of their prob-lems only if regulators and market partici-
pants continue to play their cards right.
For more detail, see George Magnuss
UBS Economic Insights Deleveraging:
a different kind of downturn,June 2008.
The upshot is thata Japan-style lost decadecan probably be averted.That said, the effects of thecrisis itself and the asso-ciated regulatory backlashcould be long-lasting
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Mobilizing the reservesCentral bankers convene to discuss how best to invest their trillions
Put yourself in the well-polished brogues
of a central banker. Sovereign institutionssuch as your own preside over a staggering
$13 trillion worldwide that is one out of
every 12 investible dollars on the planet.
Burgeoning reserves may seem enviable,
but they also bring outsize headaches.
How do you keep up the value of your
holdings when the dollar, long the worlds
favourite reserve currency, is fraying at the
edges? And how do you respond to politi-
cians who would like you to pay more into
the public purse?
All these questions help to explain why,
every June, central bankers from all overthe world converge on the UBS Reserve
Management Seminar (see box). In keep-
ing with the collaborative spirit of the
event, a central feature is the survey of
central bank investment practices. Com-
piled by UBSs relationship managers for
sovereign institutions over the past decade,
these statistics provide a valuable picture
of whats changing and whats not in the
otherwise understated world of central
banking.
Introducing this years survey, confer-
ence organizer Terry Keeley noted thatonly 3% of respondents still invest exclu-
sively in US treasuries or deposits, down
from almost one-third just five years ago.
But its too soon to sound the dollars
death-knell. As Keeley noted, the green-
Central bank investment strategies may be less conservative than the architecture suggests
back remains overwhelmingly the largest
reserve holding. At the same time, only alimited number of European and Middle
Eastern central banks have made a signif-
icant move towards the euro. This year,
only 12% of respondents said they would
increase their euro holdings, sharply down
from 45% in 2006 07. More than one-
third said they would not change their cur-
rency allocation.
Other forms of diversification are pop-
ular, though. Many sovereign institutions
have parlayed some of their dollar hold-
ings into higher yielding US agencies a
category that includes paper issued by thefederal mortgage institutions and even
corporate debt. Almost one-fifth of re-
spondents, including the Swiss National
Bank, now invest in equities, up from 2%
only five years ago.
Futures and forwards
A growing familiarity with derivatives is
also evident. Some 70% of respondents
use them in managing their portfolios, up
from just over one-half in 2002. The most
common instruments are bond contracts,
eurocurrency futures, foreign exchangeforwards, interest rate and currency swaps,
and OTC options for foreign exchange and
gold, in that order.
Speaking of gold, the first signs of a re-
think may be evident. Back in the 1990s,
it became fashionable to sell down hold-
ings of bullion. So far, the rally in goldprices has prompted only a handful of cen-
tral banks to make significant purchases
although China has picked up roughly
as much as Austria sold. But 7% of this
years respondents said they planned to
increase their gold holdings. Thats more
than twice the number who favoured a
higher weighting of equities. In a world of
change, some central bank traditions are
remarkably durable.
Martin Hood News for Banks
Conferences
14 UBS News for Banks / Autumn 2008
About the ReserveManagement Seminar
First held in 1995, the Reserve Manage-
ment Seminar brings together partici-
pants from central banks and sovereign
institutions worldwide. Taking place
this year at Thun, Switzerland from
June 1 6, the seminar attracted repre-sentatives from more than 70 sovereign
institutions, which collectively manage
three-quarters of the worlds total
reserves.
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Blue Sea thinkingA new index on sea-freight derivatives helps investors tap into the China story
In the same week that UBS launched
its Blue Sea index on freight derivatives,the 203,512-tonne bulk carrier China
Steel Team was booked to carry iron ore
from Brazil to China. At a record-break-
ing $303,000 per day, the freight rate
was more than three times higher than
the ships last fixture, just one month pre-
viously. China Steel Team is one of fewer
than 600 Capesize bulk carriers in the
world. And as the name of this particu-
lar one suggests, Chinas prodigious appe-
tite for raw materials is keeping all of them
busy. Thats not surprising, when you con-
sider that Baosteel, Chinas leading steelproducer, needs 150 ship-loads of ore
every year to feed its blast furnaces.
Statistics like these explain why sea
freight rates are rocketing, particularly for
dry bulk cargoes such as iron ore or coal.
According to Simpson Spence & Young, a
consultancy, average dry bulk freight rates
reached almost $220,000 per day in May,
up from $80,000 or below in January
and a previous long-term average of
$15,000 $20,000. Capacity shortage is
responsible for part of this squeeze but
a lack of tonnage is not the whole story.Even if the 185 or so Capesizers on order
could be delivered tomorrow, ports and
cargo terminals are too choked with ship-
ping to allow them to load and unload
The sea may be calm but the freight rates are volatile
Solutions
on time. The upshot is a rising trend in
freight rates, coupled with spectacular vol-atility; the benchmark Baltic Exchange sea
freight index for dry commodities sagged
by more than a third between November
last year and mid-January 2008 on fears
of a US recession, although it has since
bounced back.
That volatility, of course, has already
attracted banks, hedge funds, and other
financial institutions. So far, would-be
investors have looked to the existing mar-
kets for sea-freight derivatives, which are
based mainly on futures and forwards on
the principal reference indices. What waslacking, however, was a packaged instru-
ment that offered a balanced exposure to
a representative spectrum of the dry-bulk
freight market. It was this gap that UBS
sought to fill when it launched its Blue Sea
Index on May 22.
Congestion factor
UBS Blue Sea is the first fully integrated in-
dex to be benchmarked on the most ac-
tively traded dry-bulk forward freight
agreements. FFAs are non-standardized
over-the-counter forward contracts basedon one of several underlying freight indi-
ces. They are agreed between two parties
for a specific route, for a specific delivery
rate and a specific vessel type. The index
also incorporates a Port Congestion Fac-
tor that takes into account the effect onfreight derivative prices of loading or un-
loading delays in more than 60 iron ore
and coal ports worldwide.
The index is aimed primarily at investors
who are interested in freight as a generic
asset class. In addition, shipowners and
charterers could use the index to hedge
their total exposure to freight rates. For
this purpose, sub-indices are also available.
These are based on the three categories of
bulk carriers that comprise the main index,
namely the Capesize giants and the hand-
ier-sized Panamax and Supramax types.Its too early to say which types of
investor will make the most intensive use
of the new index. But Blue Sea has cer-
tainly captured the attention of industry
experts. Lloyds List, the longest-standing
daily newspaper for the maritime industry,
commented as follows: This new UBS
initiative deserves to be watched as it may
introduce a new level of sophistication to
the freight derivatives market by opening
it up to investors who are not necessarily
freight professionals. The Blue Sea Index is
indeed blue sky thinking.
Ilija MurisicUBS Investment Bank, Hybrid Derivatives [email protected]
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Solutions
Engine of empowermentHow an online tool adds wow to the art of designing and distributingequity structured products
Equity Investor puts bespoke structured products at your fingertips
Like many investors in troubled times,
Rob Muster is in two minds. Although he
retired two years ago from an executive-
level job at an insurance firm, he keeps in
touch with the markets and runs his own
portfolio. Some of the bombed-out
finance stocks harbour quite a bit of value,
he suspects. But the current volatility
makes him nervous and he didnt build his
career at a blue-chip life company by
taking uncontrolled bets.The situation, he judges, calls for a prod-
uct with some measure of downside pro-
tection but, in the past, few such gizmos
appealed to him. Either the minimum in-
vestment would be too high or the tenor
would be too long. He doesnt want to
invest 2 million and hed prefer not to be
locked in for a year. Still, he might as well
arrange a meeting with his helpful client
advisor, Pia Esempio, to see what she has.
Muster is pleasantly surprised. Over a
cup of coffee, Esempio shows him a variety
of investment possibilities some with
higher upside, such as the PERLES Plus\Bo-
nus Certificates, and others that lean moretowards yield enhancement, such as Kick-
in GOALs\Reverse Convertibles. Right there
on her laptop, she explains, she can build
a matrix of potential real-time yields across
over 200 underlying securities and six dif-
ferent structured product categories. And,
no, he doesnt have to invest 2 million.
Indeed, the minimum can be just 50,000.
Tenors can be short too: anything down to
one month for selected products.
Wow, Muster thinks, this is a different
experience. Esempio could echo that senti-
ment. Since her bank adopted UBSs
Equity Investor tool (see box), her clients
have shown markedly more interest instructured products. Thats not surpris-
ing, as shes now able to offer products
that exactly match their market views and
risk appetites. In short, she feels empow-
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UBS Equity Investor at a glance
UBS Equity Investor is an online interface that enables advisors to create equity-based
instruments that exactly match client needs. Products available through Equity Inves-
tor include GOALs (reverse convertibles), BLOCS (discount certificates with or without
a barrier) and PERLES Plus (bonus certificates). Used by UBS client advisors across
Europe and Asia for a number of years, the Equity Investor application is now also
available to UBSs partner institutions. The tool integrates several key components:automated real-time pricing for products that UBS makes markets in; access to re-
search and tutorials on product structures; and straight-through transaction process-
ing and the after-sales service required for equity products.
ered. It certainly wasnt like this just a few
years ago. Creating a new structured prod-
uct used to involve a lot of manual screen-checking and phoning as often it still
does. If only, people like Esempio used to
sigh, structured products could be sum-
moned up on demand, like a genie out of
a lamp.
That very wish, in fact, motivated the
development of UBS Equity Investor. Its
predecessor, FX Investor, was deployed as
early as 2002. This online tool went far
towards establishing foreign exchange as
an asset class in its own right among pri-
vate clients. A particular attraction of FX
Investor is that it allows client advisorsto structure their own double-currency
deposits (DOCUs) effectively deposits
matched to a currency call option. As
investors built up huge cash positions dur-
ing the post-2001 market meltdown, the
DOCU became the right product at the
right time. (See The discreet charm of the
DOCU in News for Banks 1/2006).
Technical challenges
The question now was whether UBS could
apply the technology of FX Investor to eq-
uity structured products. That was no sim-ple task. While foreign exchange is one of
the most highly standardized commodi-
ties on the planet, equities are less homo-
geneous than the cheeses of France. Thus
structured products on equities must take
account of the underlying securitys physi-
cal settlement requirements, corporate
actions, dividends, varying exchange open-
ing hours and regulatory environments.
The technical challenges also included
automated real-time pricing for the instru-
ments on offer, straight-through transac-
tion processing, and full integration withthe banks risk-management systems.
Equity Investor also had to mesh with
KeyInvest, a suite of databases that serves
as the shop window for all UBSs invest-
ment products. Advisors refer to KeyInvestto check if a structured product already ex-
ists that will fit their clients needs. If not,
they can then use Equity Investor to create
one.
Client advisors were quick to take ad-
vantage of the tool when UBS rolled out
Equity Investor within the firm in 2003. A
special version was also deployed in the
banks Asia Pacific region, where it soon
established itself. Accumulators a struc-
tured product designed to let investors buy
shares efficiently over a period of time in a
moderately buoyant market proved a hitduring last years bull run in Hong Kong.
The next step was to offer the tool to
its partner institutions. The first third-party
users signed up late last year. Which is why
the wholly fictional Rob Muster is nowmeeting with the gracious and efficient
(but no less imaginary) Pia Esempio.
Muster still hasnt finished his coffee but
hes already fairly certain what kind of
structure would suit him. Hed like a return
of around 10%, and so Esempio suggests
that they invest in a banking sector index
via a three-month reverse convertible with
a 25% risk buffer.
If the index trades sideways during the
next three months, Muster will receive an
above-market rate of return. After three
months, the parameters can be re-alignedto generate 10% for the next three
months, depending on market conditions
at the time. The instrument will perform
less well than the index only if, against
expectations, the index should rise dramat-
ically over the period. And, even if the
index should fall below the specified strike
price, he will lose less than if he held the
underlying stocks. Muster agrees, and the
deal is done in seconds. Yes, this was a
really different experience, he thinks. And
the coffee wasnt bad either.
Gavin StanleyUBS Investment Bank, Derivatives [email protected]
Specially created products make for a superior client experience
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FX fanfare
UBS was named as Best Banks Platform
(for e-tools and service) and Best Bank forPost-Trade Services in Profit & Loss maga-
zines Digital FX Awards 2008. Regarding
the Best Banks Platform award, the mag-
azine said: Years of experience clearly
count for UBS. Since we started awarding
client segment service trophies in 2004,
UBS has won this prize every year and
2008 is no different. True, this is partially
because the bank has an excellent service
model for its banking brethren which
relies upon offline and online services, but
as we have repeatedly stated UBS does
the simple things really well.
In brief
Seminar for sovereigns
The inaugural UBS Sovereign Wealth
Fund conference took place in Abu
Dhabi in April. Attended by represent-
atives from 25 sovereign institutions
around the world, the event covered
topics such as best practices for sov-
ereign wealth funds, asset allocation
and the implications of strategic equity
holdings. Keynote speeches addressed
topics including public relations, private
equity, and cross-border capital flows.
According to financial services consul-
tancy Cerulli, sovereign wealth fundshave allocated an estimated $1.3 trillion
to external managers for investment in
global capital markets. This amounts
to about 44% of the funds total esti-
mated assets. The event was one of the
first to focus expressly on the needs of
sovereign wealth funds.
Works outing
Some 60,000 artists, collectors, gallery owners and curators converged on Switzerland
this June for the 39 th Art Basel. Sponsored by UBS for the past 15 years, the event is
widely recognized as a leading forum in the international art world. The 300 exhibiting
galleries were selected from 1,000 or more applications. The galleries showed works
by more than 2,000 artists. Art Basel Miami Beach, a sister event, is scheduled for
December 4 7, 2008.
Face to face with 300 exhibitors at Art Basel
Bridge to the Netherlands
UBS has signed an agreement to acquire the VermogensGroep, an independent
Amsterdam-based wealth manager. This transaction will create one of the foremost
wealth management firms in the Netherlands. VermogensGroep serves wealthy
private clients, foundations and institutions in the Dutch market with 38 staff work-
ing in Amsterdam. The firm manages client assets of approximately 4 billion and
an additional 10 bil lion assets under administration. The core business of Ver-
mogensGroep is the provision of its wealth intelligence and control solution (consist-
ing of investment management, monitoring and reporting services) to ultra-high net
worth clients. VermogensGroep will be fully integrated into UBSs operations over
time. Closing of the transaction remains subject to regulatory approval.
Cash call
Cash being a global business, UBS gath-
ered participants from a dozen or so
countries at its second International
Cash Seminar, which took place at Thun,
Switzerland, in July. The first day opened
with a presentation and intensive work-
shop on liquidity management, including
a session on collateralized funding and
liquidity strategies. A guest speaker fromthe Swiss National Bank contributed a
central bank perspective on the topic. The
second days sessions focused on global
cash infrastructure and settlement risk.
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Inflation investigated
Rising prices will have a mixed effect on emerging markets corporates, conclude
UBS Investment Bank analysts in a new study entitled What will inflation mean for
Global Emerging Markets? Food and energy costs, the main culprits behind rising
inflation, tend to have a stronger effect in emerging markets than they do in devel-
oped countries, say the researchers. Rising inflation has a negative impact on equity
markets as it raises the equity risk premium and reduces the quality of earnings.
Companies that outperform in this environment are ones with pricing power, where
fixed costs benefit from long-term pricing contracts, or ones with some leverage but
limited refinancing needs. The upshot: materials, energy and financials are likely to
do relatively better than IT and healthcare in these markets.
Administrative accolade
UBSs Fund Services unit was recentlynamed Americas Fund Administrator of
the Year (Offshore) by ICFA Magazine, an
industry journal. Part of the banks asset
management arm, Fund Services is a dedi-
cated fund administrator that provides
tailored and flexible services for retail and
institutional funds, as well as for hedge
funds and alternative investment vehicles.
Its administration centres are located in
Canada, the Cayman Islands, Ireland,
Luxembourg, Poland, Switzerland and the
UK, with additional offices in Hong Kong
and New York.
News for Banks is a quarterly newsletter for banks and financial institutions worldwide
Published by: UBS AG, P.O. Box, 8098 Zurich, Switzerland. E-mail: [email protected]: Sylvia Goepfert, Kathrin Wolff Schmandt, Markus StraessleEditorial board: Sylvia Goepfert, Manfred Kroeller, Markus Straessle, Reto Gadient, Kathrin Wolff SchmandtEditor: Martin HoodPhoto credits: Getty 1, 2, 7, 9, 14, 15, 17, 19; Kursiv 3, 18; Erwin Zueger Photography 5, 6, 12, 13; UBS 10, 11, 16; Art Basel 18Layout: UBS AG, Procurement/Publishing, Basel
Copyright: UBS 2008 Printed in Switzer land. Reproduction or quotation is permitted on request provided the source is stated.
While the facts in this publication have been carefully researched, UBS cannot be held responsible for their accuracy.The opinions expressed may differ from official UBS views. This publication is for information only and is not intended as an offer, or a solicitationof an offer, to buy or sell any investment or other specific product or service from any person in any jurisdiction. Certain products and services aresubject to legal restrictions and cannot be offered worldwide on an unrestricted basis.
Bankers are forever
James Bond fans will remember 2008 for
two reasons. May marked the centennial
of Ian Fleming, the secret agents crea-
tor, while the latest 007 film debuts in No-
vember. This could be the moment, then,
to highlight two connections albeit tenu-
ous between UBS and the prolific author
of spy novels. In 1935, at the age of 27,
Ian Fleming joined the City of London firmRowe & Pitman, an antecedent firm of
todays UBS. As history relates, however,
Fleming was to find his mtier in a differ-
ent field. He left the firm to join naval
intelligence in 1939. For its part, Rowe &
Pitman made do without his services
until it was bought by SG Warburg in
1986. Swiss Bank Corporation then
absorbed Warburg shortly before its own
merger with Union Bank of Switzerland.
The Bond franchise and the bank have
crossed paths on just one other occasion:
a UBS gold vault featured briefly in Gold-finger, the Bond film first screened in 1964.
As Auric Goldfinger might have said, once
is happenstance but twice is coincidence.
Show in Shanghai
A selection of works from the UBS Art Collection was exhibited at the Shanghai Art
Museum from June 6 to July 20, 2008, marking a new milestone for the collection.
Entitled Memories for Tomorrow, the exhibition featured memorials of past events
and visions for the future. Works from the collection have already been shown at the
Museum of Modern Art (MoMA) in New York, at the Tate Modern in London, at muse-
ums in Sydney and Melbourne as well as at the Mori Art Museum in Tokyo. Further
exhibitions are planned for later this year and 2009.
7/29/2019 News for Banks
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