Embattled UBS restructures as rich clients flee
Well, it's no surprise. When you lose 40 billion dollars in a single quarter, you are in trouble, and UBS is in trouble. Reuters, and CNBC, is reporting that the firm is undergoing a restructuring, with talk of spinning off its investment banking division.
Tuesday, August 12, 2008
Sunday, August 10, 2008
UBS Uses Google Adwords to Announce Settlement
This is a first, at least for me. I was at SECLaw.com and noticed in the Google Advertisements an ad for the UBS ARS settlement. It wasn't an ad from an attorney, it had a reference to UBS.com.
I thought someone was trying to spoof UBS' web site, or that it was someone trying to generate clicks from ARS holder by putting UBS' web site URL in the ad.
I followed the link, and lo and behold, it was a link to the real UBS site, specifically a press release about the settlement with the NY AG, the SEC and the NASAA.
An interesting concept, paying Google to advertise your multi-billion dollar settlement with regulators. I wonder if that was part of the settlement, or if UBS is really that proud of their multi-billion dollar settlement that they are paying to advertise it.
The press release provides some additional details. First, the repurchase from investors will be made over TWO YEARS, starting in January 2009. Smaller investors may be able to get out earlier, in November, but some individuals will not be liquid for quite some time - assuming of course that all of these recent scandals at UBS don't put them out of business before then.
Naturally, UBS' media folks couldn't help themselves, and attempted to spin this alleged fraud on their own customers, which resulted in $150 million in fines and billions in buy-backs as a positive:
"Today’s solution provides further relief, beginning in September, to investors who have been understandably frustrated by the industry-wide failure of the ARS market. Our leading position in supporting the market and providing liquidity is clear, and now, we are the first firm to give all clients -- private, corporate and institutional the opportunity to be made whole,” said Marten Hoekstra, Head of UBS Wealth Management Americas.
“Since the breakdown in the market, UBS clients have been offered multiple liquidity options. They have been able to borrow 100 percent against the value of their holdings. The solutions announced today provide our clients with the widest range of choices in the industry, including a two-year window during which clients can either continue to earn interest or redeem their ARS at any time,” Hoekstra added.
"Leading position" in the ARS market? They certainly were, but not in a good way.
I thought someone was trying to spoof UBS' web site, or that it was someone trying to generate clicks from ARS holder by putting UBS' web site URL in the ad.
I followed the link, and lo and behold, it was a link to the real UBS site, specifically a press release about the settlement with the NY AG, the SEC and the NASAA.
An interesting concept, paying Google to advertise your multi-billion dollar settlement with regulators. I wonder if that was part of the settlement, or if UBS is really that proud of their multi-billion dollar settlement that they are paying to advertise it.
The press release provides some additional details. First, the repurchase from investors will be made over TWO YEARS, starting in January 2009. Smaller investors may be able to get out earlier, in November, but some individuals will not be liquid for quite some time - assuming of course that all of these recent scandals at UBS don't put them out of business before then.
Naturally, UBS' media folks couldn't help themselves, and attempted to spin this alleged fraud on their own customers, which resulted in $150 million in fines and billions in buy-backs as a positive:
"Today’s solution provides further relief, beginning in September, to investors who have been understandably frustrated by the industry-wide failure of the ARS market. Our leading position in supporting the market and providing liquidity is clear, and now, we are the first firm to give all clients -- private, corporate and institutional the opportunity to be made whole,” said Marten Hoekstra, Head of UBS Wealth Management Americas.
“Since the breakdown in the market, UBS clients have been offered multiple liquidity options. They have been able to borrow 100 percent against the value of their holdings. The solutions announced today provide our clients with the widest range of choices in the industry, including a two-year window during which clients can either continue to earn interest or redeem their ARS at any time,” Hoekstra added.
"Leading position" in the ARS market? They certainly were, but not in a good way.
Friday, August 8, 2008
ARS Crisis Over?
Well, in just a few short days (OK, a week) it looks like the ARS crisis is coming to a close.
On Thursday, Citigroup settled state and federal claims, agreeing to buy $7.3 billion of the debt from individual investors and pay $100 million in fines, as well as pledging to help 2,600 institutional customers unload $12 billion of securities.
Today, UBS agreed to pay $150 million in fines and begin buying back $18.6 billion in failed auction-rate securities. UBS will purchase $8.3 billion of the securities from its clients beginning on Oct. 31 under a settlement with New York State Attorney General Andrew Cuomo, the Securities and Exchange Commission, and a group of other state regulators, according to terms of the settlement announced today. The bank must also help its institutional clients sell an additional $10.3 billion in securities, and may have to buy back the bonds if they fail to find a market.
After screwing around for 6 months, the wirehouses folded, and we assume the rest will enter into similar agreements - at least the ones where the regulators were able to find some evidence of fraud.
Two interesting side notes - CNBC is reporting the Citigroup settled because of pressure from their brokers who sold these securities. While that was a rumor, hats off to the Citigroup brokers if that rumor is true. Citigroup brokers (and UBS brokers) were played by the bond desks, and were pawns in a flat out financial grab, at least according to the regulatory complaint filed against UBS.
Now, who is going to compensate investors for their consequential damages. How many homes, businesses and investment opportunities were lost?
And how are these firms going to re-gain their reputations? Those emails at UBS were outrageous, and a pure demonstration that UBS, or at least parts of UBS management, do not care one whit about their brokers, or their customers, and dumped, (yes dumped) those securities on an unsuspecting public.
Imagine what would have happened to a smaller firm if it was discovered doing the same thing? Permanent bars, criminal proceedings, and massive personal fines.
Are we going to see that here? Mr. Cuomo?
On Thursday, Citigroup settled state and federal claims, agreeing to buy $7.3 billion of the debt from individual investors and pay $100 million in fines, as well as pledging to help 2,600 institutional customers unload $12 billion of securities.
Today, UBS agreed to pay $150 million in fines and begin buying back $18.6 billion in failed auction-rate securities. UBS will purchase $8.3 billion of the securities from its clients beginning on Oct. 31 under a settlement with New York State Attorney General Andrew Cuomo, the Securities and Exchange Commission, and a group of other state regulators, according to terms of the settlement announced today. The bank must also help its institutional clients sell an additional $10.3 billion in securities, and may have to buy back the bonds if they fail to find a market.
After screwing around for 6 months, the wirehouses folded, and we assume the rest will enter into similar agreements - at least the ones where the regulators were able to find some evidence of fraud.
Two interesting side notes - CNBC is reporting the Citigroup settled because of pressure from their brokers who sold these securities. While that was a rumor, hats off to the Citigroup brokers if that rumor is true. Citigroup brokers (and UBS brokers) were played by the bond desks, and were pawns in a flat out financial grab, at least according to the regulatory complaint filed against UBS.
Now, who is going to compensate investors for their consequential damages. How many homes, businesses and investment opportunities were lost?
And how are these firms going to re-gain their reputations? Those emails at UBS were outrageous, and a pure demonstration that UBS, or at least parts of UBS management, do not care one whit about their brokers, or their customers, and dumped, (yes dumped) those securities on an unsuspecting public.
Imagine what would have happened to a smaller firm if it was discovered doing the same thing? Permanent bars, criminal proceedings, and massive personal fines.
Are we going to see that here? Mr. Cuomo?
Wednesday, August 6, 2008
UBS' General Counsel Aufhauser Quits
UBS In-Houser Quits Over Securities Investigation
No surprise here. As we discussed last week UBS investment banking general counsel David Aufhauser has been named in the press as one of the UBS executives who sold his personal ARS holdings in December 2007 based on information he received from other executives, while the firm was pushing the securities on its customers.
No surprise here. As we discussed last week UBS investment banking general counsel David Aufhauser has been named in the press as one of the UBS executives who sold his personal ARS holdings in December 2007 based on information he received from other executives, while the firm was pushing the securities on its customers.
ARS Solution? - Citigroup to Buy Back ARS?
Citi talks with regulators may lead to buybacks
Here is an interesting solution to the ARS liquidity problem. Reuters and the WSJ are reporting that Citigroup is in settlement talks with regulators to resolve allegations that it engaged in wrongful conduct in selling auction rate securities to its customers. The settlement? According to the reports, Citigroup could be buying back over 5 BILLION dollars worth of the securities from its customers.
Good news for those Smith Barney investors who are holding the illiquid securities. Bad news for Citigroup shareholders........and probably for Smith Barney brokers. Someone is going to pay for a portion of that 5 billion dollars.
Here is an interesting solution to the ARS liquidity problem. Reuters and the WSJ are reporting that Citigroup is in settlement talks with regulators to resolve allegations that it engaged in wrongful conduct in selling auction rate securities to its customers. The settlement? According to the reports, Citigroup could be buying back over 5 BILLION dollars worth of the securities from its customers.
Good news for those Smith Barney investors who are holding the illiquid securities. Bad news for Citigroup shareholders........and probably for Smith Barney brokers. Someone is going to pay for a portion of that 5 billion dollars.
Saturday, August 2, 2008
NY AG to Sue Citigroup over ARS?
It appears that the New York Attorney General is getting ready to go after Citigroup, not only for ARS violations, but for destruction of evidence.
We originally thought that the various headlines lines like "Citigroup subject of ARS investigations, too, filing shows - Financial Week were a bit over the top, since the substance behind the headline was that Citigroup disclosed in a 10-Q that it had received state and federal subpoenas. No big deal there, since receiving a subpoena does not mean that you are the subject of an investigation.
However, we then found the story at CNBC - Citigroup Faces Fraud Charges From New York AG which reports that "[t]he office of New York Attorney General Andrew Cuomo said Friday it plans to imminently charge Citigroup's Global Markets and Citi Smith Barney units with fraudulently marketing auction-rate securities and destroying documents that were supoenaed by the state. According to Cuomo's office, Citigroup has repeatedly and persistently committed fraud by making material misrepresentations and omissions in its underwriting and distribution of auction-rate securities by marketing them as very safe and liquid investments.
We tried to find a link to the AG's quote at his web site, but it was apparently down this morning.
We originally thought that the various headlines lines like "Citigroup subject of ARS investigations, too, filing shows - Financial Week were a bit over the top, since the substance behind the headline was that Citigroup disclosed in a 10-Q that it had received state and federal subpoenas. No big deal there, since receiving a subpoena does not mean that you are the subject of an investigation.
However, we then found the story at CNBC - Citigroup Faces Fraud Charges From New York AG which reports that "[t]he office of New York Attorney General Andrew Cuomo said Friday it plans to imminently charge Citigroup's Global Markets and Citi Smith Barney units with fraudulently marketing auction-rate securities and destroying documents that were supoenaed by the state. According to Cuomo's office, Citigroup has repeatedly and persistently committed fraud by making material misrepresentations and omissions in its underwriting and distribution of auction-rate securities by marketing them as very safe and liquid investments.
We tried to find a link to the AG's quote at his web site, but it was apparently down this morning.
Merrill Accused of Securities Fraud
How many hits can a brokerage firm take? Merrill was at the center of the research analyst scandal just a few years ago, and now it looks like they may be center stage in the ARS scandal.
According to the Wall Street Journal, Massachusetts regulators accused Merrill Lynch of co-opting "supposedly independent" research analysts to help them dump collapsing auction-rate securities on unsuspecting customers. Let's see. First they "co-opted" their own research department to get them to promote securities of issuers who they were looking to get investment banking business. Then the regulators push for independent research. Now Merrill is accused of "co-opting" the independent analysts to enable Merrill to dump its inventory of auction rate securities?
The continuing problem with Merrill did not escape the notice of investigators -
Obviously we don't know if this is true, and on more than one occasion we have seen securities regulators misunderstand the markets, or twist a fact far enough to reverse it, but these are serious allegations, and it may not be limited to Merrill and UBS. The Journal says that this complaint, coming on the heels of the complaint against UBS, is part of a widening crackdown on "Wall Street peddlers" of the "arcane" auction products -- debt instruments that some brokers likened to stable money-market funds and other cash-like investments.
Auction rate securities are hardly an "arcane" investment, but the conduct of these firms, if true, demonstrates a dark side of big firm Wall Street that needs to be addressed. The utter contempt for the markets, for their own brokers, and most egregious, their own customers is appalling.
How did the AG's office gather enough evidence to charge Merrill? Well, you get one guess. In this day and age, what is the stupidest, dumbest, most "arcane" method of communication when you are going to do something that is illegal, immoral or unethical? Why you discuss it in email!
According to the Journal, Merrill Lynch executives, the same group of people who were severely burned when their research analyst scandal was laid bare in their own emails, discussed the ARS markets and their participation in it, in emails.
The WSJ article contains a number of very disturbing allegations regarding Merrill's conduct in influencing the analysts comments, but the most telling, for me at least, this is series of allegations:
If true, Merrill is trying to dump its inventory, on its own customers, for fear of financial losses, and looking to transfer those losses TO ITS OWN CUSTOMERS. On February 7, 2008, it is telling its sales force that the securities are "a good conservative investment" and the market collapses the following week, undoubtedly because Merrill withdrew its support for the auctions.
It is the same allegation at UBS. Screw the brokers, screw the customers, we need to make money, and we are going to dump this crap on our customers.
"You and Us?" With friends like that............
And what is the state going to do about it? Basically nothing. The state is looking for fines, restitution and a censure.
How about putting Merrill out of business for its flagrant and ongoing abuse of the markets, and its customers. How about barring the executives who have engaged in this conduct - for life?
A fine? Merrill paid a BILLION DOLLAR fine and it doesn't phase them, they simply continue onward, acting in their own financial interest, with complete and utter disregard of the interests of their clients.
A fine will not do it. Suspend Merrill for 6 months. Bar the employees involved, and suspend the executives with the supervisory responsibility for this conduct.
That is what the regulators would do to any of the 5,000 small broker dealers in this country, why are we continuing to allow this flagrant abuse to continue?
According to the Wall Street Journal, Massachusetts regulators accused Merrill Lynch of co-opting "supposedly independent" research analysts to help them dump collapsing auction-rate securities on unsuspecting customers. Let's see. First they "co-opted" their own research department to get them to promote securities of issuers who they were looking to get investment banking business. Then the regulators push for independent research. Now Merrill is accused of "co-opting" the independent analysts to enable Merrill to dump its inventory of auction rate securities?
The continuing problem with Merrill did not escape the notice of investigators -
"We've seen a corruption of research," says Massachusetts Secretary of the Commonwealth William Galvin, who oversees the state securities division. "This is an issue that many of us on the enforcement side have seen years ago, and it's the same pattern."
Obviously we don't know if this is true, and on more than one occasion we have seen securities regulators misunderstand the markets, or twist a fact far enough to reverse it, but these are serious allegations, and it may not be limited to Merrill and UBS. The Journal says that this complaint, coming on the heels of the complaint against UBS, is part of a widening crackdown on "Wall Street peddlers" of the "arcane" auction products -- debt instruments that some brokers likened to stable money-market funds and other cash-like investments.
Auction rate securities are hardly an "arcane" investment, but the conduct of these firms, if true, demonstrates a dark side of big firm Wall Street that needs to be addressed. The utter contempt for the markets, for their own brokers, and most egregious, their own customers is appalling.
How did the AG's office gather enough evidence to charge Merrill? Well, you get one guess. In this day and age, what is the stupidest, dumbest, most "arcane" method of communication when you are going to do something that is illegal, immoral or unethical? Why you discuss it in email!
According to the Journal, Merrill Lynch executives, the same group of people who were severely burned when their research analyst scandal was laid bare in their own emails, discussed the ARS markets and their participation in it, in emails.
The WSJ article contains a number of very disturbing allegations regarding Merrill's conduct in influencing the analysts comments, but the most telling, for me at least, this is series of allegations:
Emails show increasing desperation by the sales force. On Nov. 26, Ms. Constable [a managing director in charge of Merrill's auction-rate securities desk] told an associate in an email that Merrill had to slash prices to sell its inventory of auction-rate securities: "The gloves are off and we are not concerned about issuer perception of [Merrill Lynch's] abilities and the competition. Gotta Move these microwave ovens!!"
Still, on Feb. 7, 2008, Mr. Conery [a research analyst]tried to reassure nervous brokers on another conference call, saying "I will tell you Merrill Lynch, certainly, by all indications, is committed to this product" and that the securities represent "a good, conservative, reasonable investment."
Six days later, the auction-rate securities market collapsed. Merrill declined to make any of the employees cited in the emails available for comment and none could be reached directly.
If true, Merrill is trying to dump its inventory, on its own customers, for fear of financial losses, and looking to transfer those losses TO ITS OWN CUSTOMERS. On February 7, 2008, it is telling its sales force that the securities are "a good conservative investment" and the market collapses the following week, undoubtedly because Merrill withdrew its support for the auctions.
It is the same allegation at UBS. Screw the brokers, screw the customers, we need to make money, and we are going to dump this crap on our customers.
"You and Us?" With friends like that............
And what is the state going to do about it? Basically nothing. The state is looking for fines, restitution and a censure.
How about putting Merrill out of business for its flagrant and ongoing abuse of the markets, and its customers. How about barring the executives who have engaged in this conduct - for life?
A fine? Merrill paid a BILLION DOLLAR fine and it doesn't phase them, they simply continue onward, acting in their own financial interest, with complete and utter disregard of the interests of their clients.
A fine will not do it. Suspend Merrill for 6 months. Bar the employees involved, and suspend the executives with the supervisory responsibility for this conduct.
That is what the regulators would do to any of the 5,000 small broker dealers in this country, why are we continuing to allow this flagrant abuse to continue?
UBS General Counsel Implicated in Auction Rate Securities Party
It seems that UBS just can't keep themselves out of the news. First the tax fraud investigation, then the Auction Rate Securities lawsuits, then the Massacheuttes Attorney General's suit, and the New York AG's suit.
Now this revelation from the Wall Street Journal -
According to the article, UBS is denying any wrongful conduct:
However, having your chief legal counsel identified as a participant in a fraud cannot be good for any brokerage firm; and in particular for one with as many black eyes as UBS.
Law Blog - WSJ.com : UBS General Counsel, Merrill, Implicated in Auction Rate Securities Party: "UBS General Counsel, Merrill, Implicated in Auction Rate Securities Party"
Now this revelation from the Wall Street Journal -
Today, the WSJ’s Liz Rappaport reports that David Aufhauser, the former general counsel to the Treasury Department and the current GC for UBS’s investment-banking arm is at the center of the complaint that New York AG Andrew Cuomo recently filed against the Swiss bank for fraud in the ARS market.
Aufhauser (Wesleyan, Penn Law, Harvard MBA) is the individual described in Cuomo’s case against UBS as “Executive A,” the WSJ reports. The complaint, filed last week, alleges that he and six other UBS executives sold $21 million of their personal holdings in auction-rate securities in the months leading up to the market’s collapse, based on unique inside knowledge of the problems in the market. Aufhauser’s lawyer didn’t respond to requests for comment.
According to the article, UBS is denying any wrongful conduct:
A spokeswoman for UBS said: “As we have said previously, after an internal review assisted by independent external counsel, UBS does not believe there was any unlawful conduct by any employee in this matter.”
However, having your chief legal counsel identified as a participant in a fraud cannot be good for any brokerage firm; and in particular for one with as many black eyes as UBS.
Law Blog - WSJ.com : UBS General Counsel, Merrill, Implicated in Auction Rate Securities Party: "UBS General Counsel, Merrill, Implicated in Auction Rate Securities Party"
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