The Fall of UBS: The Reasons Behind the Decline of Union Bank of Switzerland

A bestseller in Europe: already over 35,000 copies sold in German and French. No. 1 on bestseller list in Europe for seven months!

"Why did Cabiallavetta, the CEO of the Union Bank of Switzerland, agree to such a deal?" asked The Economist on January 31, 1998. The deal was a merger between UBS and Swiss Bank Corp., a smaller rival. One reason, The Economist speculated, was that there was, "in UBS's London based derivatives business, a hole of unknown (but possibly huge) proportions."

By mid-1997, the bank's trading division, built by Cabiallavetta, was falling apart with estimated losses of 1 billion Swiss francs ($700 / L416 million). The Financial Times estimated the loss at 650 million Swiss francs.

Was this the real reason for the UBS/SBC merger? And were there, as The Economist also speculated, parallels to the decline of Barings, the respected British investment bank brought to ruin in early 1995 by one rogue trader. Who was the rogue trader at UBS?

In UBS case, Nick Leeson's role might have been played by a former Israeli army officer born in 1950 in Haifa, the Israeli seaport, who had been a member of an elite paratrooper division and decorated fighter in the Arab-Israeli Wars of 1967 and 1973. His name was Ramy Goldstein, although few UBS employees in Switzerland knew who he was.

Goldstein was the head of GED, the global equity derivatives unit at UBS, and over the years had become the bank's shining star and highest-paid employee. Reliable sources estimated that his bonus for 1996 was approximately 15 million Swiss francs ($10 / L6.25 million). The same year, Cabiallavetta paid taxes on an income of 2.1 million Swiss francs ($1.4 / L0.875 million), and Robert Studer, the chairman of the board, earned 1.4 million Swiss francs.

What happened at UBS is a complicated story involving power, ambition and vanity. It shows that risk management controls in the largest of the Swiss banks had not extended far enough from the experience. And the responsibility for the failure falls principally on Cabiallavetta.

Essential reading for business and finance professionals: a complicated story of power, ambition, vanity and a lack of risk management controls at one of Europe's largest banks.

Dirk Schutz is the deputy editor in chief of BILANZ, the leading Swiss business magazine published in Zurich. He was born in 1964 and finished his university education with a degree in economics from the University of Geneva and a degree in journalism from the University of Fribourg (Switzerland). He also attended the Hamburg school of journalism and has journalistic experiences in London, Paris, Washington and New York.