Wednesday, January 9, 2013

Transparency is starting point if UBS serious about working to recover reputation

The BBC reported that UBS is working to recover its 'honour' (reputation) in the aftermath of the Libor interest rate manipulation scandal.

Regular readers know that the starting point for recovering a bank's reputation is the bank providing ultra transparency and disclosing on an ongoing basis its current global asset, liability and off-balance sheet exposure details.

Why is this the starting point?

Since before the 1930s, ultra transparency was the sign of a bank that could stand on its own two feet and had nothing to hide.

It has the added advantage that it prevents future activities like manipulating Libor because rates like Libor can be based off of the bank's actual trades.

It also has the added advantage of bringing in sunlight which is the best disinfectant to address a culture that allowed bankers to engage in other forms of bad behavior besides manipulating the Libor interest rate for personnel and corporate advantage.

Andrea Orcel told MPs on the UK's Parliamentary Commission on Banking Standards that the bank still had more to do. 
UBS had fired 18 of the 40 staff at the centre of the Libor rigging, he said. 
He admitted that bankers had become "too arrogant".... 
"We are very focused on recovering the honour and standing the organisation had in the past," Mr Orcel said. "I am convinced that we have made a lot of progress. I am also convinced that we still need to do more." 
He added: "We all got probably too arrogant, too self-convinced that things were correct the way they were. I think the industry needs to change."
Until the banking industry provides ultra transparency, there is absolutely no reason to believe that anything fundamental has changed.  Firing people and writing memos will not change a culture that allowed interest rate manipulation to go on for years.

From the Guardian,

Orcel, who admitted that he would not have advised RBS to proceed with the ABN Amro takeover "with what we know now", said UBS was focused on "recovering the honour and the standing" of the bank. 
Even so, he said: "I can't tell you that it won't happen again" despite the changes made, which include bonuses no longer tied to individual revenue generation. The ratio of a traders' salary to their bonus could be as much as one to three, he said. 
"I am convinced that we have made a lot of progress. I am also convinced that we still need to do more," Orcel said.
Please re-read the highlighted text as Mr. Orcel explicitly confirms that the actions taken by UBS won't change the culture.

The only solution that will change the culture is the provision of ultra transparency.

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