Spin-offs Case Study

UBS AG to Split: The Right Solution to Overcome Sub-prime Crisis?

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Abstract:

UBS AG, one of the leading financial services firms in Europe providing investment banking, wealth management and asset management services across the globe, had to writedown $43 billion of its assets for the losses suffered by its investment banking division due to the sub-prime mortgage crisis in the US since July 2007. This large writedown had hit its image leading to huge withdrawals from its wealth management and asset management divisions by the high net worth individuals in the second and the third quarters of 2008, which made matters worse for UBS. Amidst this scenario, UBS decided to split its businesses into separate entities. The case would aid discussion on whether the UBS' troubles during the sub-prime crisis were due to weak risk management or poor leadership. It also debates whether splitting the businesses was the right solution for UBS to overcome its problems.

Pedagogical Objectives:

• To dynamics of the mortgage loan market
• To importance of risk management.
• To strategies to counter financial crisis.

Keywords :  UBS AG, Sub-prime crisis, Financial crisis 2008, US mortgage market, Risk management, Securitisation, Investment banking, Dillon Read Capital Management (DRCM), Sub-prime mortgage, Writedown, Leadership failure

Contents : 
US Subprime Crisis: Impact on UBS
Mortgage Loan Process
Securitisation Process in Mortgage Market
The Mortgage Lending Model Traditional vs. Sub-prime
Swiss Banking Group UBS: Strategic Options
Organisational Structure of UBS AG