The official title is “Shareholder Report on UBS’s Write-Downs,” but many just call it the “How Not to Run a Bank” report. Last week at the annual meeting of stuffy Zurich-based UBS AG, the bank’s CEO Marcel Rohner handed out a 50-page mea culpa
to shareholders explaining how it lost nearly US$40 billion betting on the U.S. subprime mortgage sector. Just don’t expect anything similar from Canada’s stumbling banks.
The study was a summary of a lengthier report UBS was forced to provide to Swiss regulators, and it’s full of astounding admissions. Time and again in the report, UBS ’fesses up that senior executives failed to “challenge” wild growth projections made by their underlings. Nor did anyone seriously stop to assess the true level of risk the bank was taking on. And when handing out massive bonuses, the bank didn’t differentiate between returns generated through genuine skill, and those earned by borrowing cheap money and taking wild bets. The image that emerges is of a bank willing to turn a blind eye, so long as the money kept rolling in.
To Canadians who have watched several of Bay Street’s finest fall flat on their faces— including CIBC, which has written down $4 billion in subprime losses so far—the soulsearching UBS report is astonishing for another reason: its very existence. The Office of the Superintendent of Financial Institutions in Ottawa didn’t return calls asking whether Canadian banks have had to put their subprime goof-ups in writing. Don’t hold your breath. “There is no tradition in Canada of holding banking executives accountable,” says shareholder activist Bob Verdun. “What happens in Canada is they take high risks, and pay themselves big bonuses if they work, but there are no penalties if they don’t.” M
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