It doesn’t make a whole lot of intuitive sense, on its face. The investment
banks are up to their eyeballs in structured products and quantitative strategies,
while the big global universal banks are heavily diversified among different
products and countries. Yet it’s the latter which are making
headlines today: both Citigroup and UBS are writing down $3 billion or so
on their fixed-income portfolios.
Heads don’t seem to be rolling at Supertanker Citi – yet. At UBS, by
contrast, Huw Jenkins is out as head of the investment bank, along with 1,500
of his colleagues.
UBS is much smaller than Citi, of course, and therefore less able to suffer
a $3 billion writedown. And it’s not as though the likes of Merrill Lynch, Bear
Stearns, and Lehman Brothers have managed to get through this credit crisis
exactly unscathed. The fact is that banks are in the lending business, that
loans are their assets, and that when a whopping great subset of the credit
markets plunges in value, those assets are going to fall. It’s the nature of
the beast, and it’s a very good idea to come clean now.
But that said, the likes of Bear Stearns and Morgan Stanley are losing money
because they made a bet and the bet didn’t pay off. UBS and Citigroup, by contrast,
are losing money because they’re too big to be able to manage their risk nimbly
and even profit from credit-market volatility in the way that Goldman Sachs
has done. Investment banks like Salomon Brothers, Dillon Read and SG Warburg
might have great reputations, but ultimately their rudders are simply too small
to be able to steer something the size of Citigroup or UBS out of trouble. Indeed,
it looks very much as though the investment bank if anything was responsible
for steering the good ship UBS into trouble. Maybe they should stick
to Brazilian equities.