world's largest wealth manager was conducting a thorough review of its businesses before deciding which ones to exit

TO BE NOTED: From Reuters:

"UBS may sell hedge fund unit to management: report

Tue Apr 21, 2009 10:57am EDT

By Jason Rhodes

ZURICH (Reuters) - UBS AG may sell all or part of its hedge funds unit in a management buyout, a newspaper said on Tuesday, in what would be a new step by Switzerland's largest bank to raise cash and reduce its risk profile.

Citing unnamed financial sources, the Neue Zuercher Zeitung said a management buyout offer for Alternative & Quantitative Investments, or parts of it, was on the table. Analysts say UBS could reap about $850 million from the sale.

The expected sale follows comments by new UBS Chief Executive Oswald Gruebel last week that the world's largest wealth manager was conducting a thorough review of its businesses before deciding which ones to exit. A company spokeswoman said UBS declined to comment.

The report came a day after UBS, one of the European banks hit hardest by the credit crisis, said it was selling Brazil's Banco Pactual for about $2.5 billion to former management as part of Gruebel's radical restructuring plan.

"A&Q ticks the box in terms of size, but you need someone with the cash ready to buy," said ZKB analyst Anreas Venditti, adding a sale price equal to around 2 percent of assets under management would lead to a deal worth around 1 billion Swiss francs ($854.7 million), if it went through.

A&Q had more than $39 billion in assets under management as of January 1, 2009, and employs about 350 people worldwide.

Former Credit Suisse boss Gruebel said last week he would not refrain from cutting entire lines of business, as he announced 8,700 new job cuts.

He also said he would take immediate steps to bolster the bank's capital base after the bank's Tier 1 ratio slipped to 10 percent at the end of March from 11 percent at the end of 2008.

STRUGGLE TO RECOVER

The Swiss bank is struggling to return to profitability and rebuild its brand after massive investments in risky U.S. assets forced it to write down more than $50 billion and accept government backing.

UBS said the sale of Pactual would strengthen its Tier 1 ratio, a measure of financial strength, by approximately 60 basis points.

"I'm not sure the sale of A&Q would have such an impact on the capital ratio as the sale of Pactual will," said Venditti. "UBS's primary focus at the moment is reducing risk and the balance sheet, but obviously if you could get some cash for A&Q, a sale might be possible."

"I think it could be possible for management to get financing. More specialized providers might also be interested," said Kepler Capital markets analyst Matthias Bueeler.

A&Q's two primary lines are a multi-manager, or fund of funds, business and a single manager business run by hedge fund specialist O'Connor.

An analyst who asked not to be named said that some alternative asset managers had left UBS this year, and that this might be an indication the bank is reducing its focus on alternatives.

A&Q's total operating income declined 29 percent to 2.9 billion Swiss francs, reflecting the continued difficult environment for hedge funds, particularly in October when aggressive attempts to reduce risk and leverage put significant pressure on securities widely held by hedge funds.

The unit's multi-manager strategies posted negative performance for the quarter, but were in line with broad hedge fund indices, while O'Connor single-manager funds had good relative performance and mixed absolute performance.

"It could make sense to split off something like this if UBS only wants to concentrate on a couple of points in the value chain and leave other parts to specialist providers," Bueeler said.

"I could imagine we might see a number of deals going through in the future," he said.

($1=1.170 Swiss Franc)

(Reporting by Jason Rhodes and Martin de Sa'Pinto; Additional reporting by Emma Thomasson, Lisa Jucca and Katie Reid; Editing by Mike Nesbit and Simon Jessop)"

This week, economic reports around the world tell the story of an ongoing economic contraction

TO BE NOTED: From News N Economics:

"Economic reports around the world (April 1-7): still scary

Wednesday, April 8, 2009

This week, economic reports around the world tell the story of an ongoing economic contraction. Overall this week's reports suggest that there is still a lot for global policymakers to worry about.

EXPORT GROWTH IS STILL IN THE RED ZONE

The chart below illustrates monthly exports through March for South Korea and Taiwan, and through February for Malaysia and Indonesia (export numbers are not seasonally factored and listed in $US). Over the year the annual growth rates show ongoing weakness.

INFLATION FALLS - STILL MOSTLY ON ENERGY AND COMMODITIES....

The chart below illustrates annual inflation rates through March for Thailand, South Korea, Switzerland, and Taiwan. Serious weakness in global demand has dragged down energy and commodity prices, taking inflation to deflation in some cases. However, eventually this will pass through to core prices (prices ex energy and food) at a lag, and core inflation (which is still very positive in the US) will fall, too. Switzerland is now negative, -0.4%, and Taiwan and Thailand have experienced deflation for two and three consecutive months, respectively.


UNEMPLOYMENT IS WEAK IN THE EUROZONE AND THE US

The chart below illustrates the annual change in the unemployment rate for the Eurozone through February and the US through March. Both registered 8.5% unemployment rates in each respective month, or a serious deterioration in labor market conditions over the year.

The labor market is generally lagged to overall economic conditions - it takes a while for firms to internalize the economic situation, firing late and hiring late. So these economies may be recovering well-before the unemployment rate starts to decline (jobless recovery).

BUT IT DOES LOOK LIKE THE ECB IS WAY LATE

The chart below illustrates the policy rates for the European Central Bank (ECB) and the Bank of Japan (BoJ). The ECB cut by 25 bps to 1.25%, and the Bank of Japan left its rate unchanged at 0.1%. Given the previous chart, which illustrates the sharp decline in labor market conditions across the Eurozone, it seems that the ECB started to ease too late. Perhaps it is because wages are a little stickier in Europe.


ANOTHER OMINOUS SIGN OF WEAKNESS IN CONSUMER SPENDING

The chart below illustrates annual retail sales growth through February for Germany and Hong Kong. Hong Kong sales are clearly tumbling, falling 13.9% over the year. German retail sales growth, however, are quite volatile; it's 5.3% decline does not show any weakness beyond normal activity since early 2007. Interesting.

THE LANDSLIDE IN UK INDUSTRIAL PRODUCTION CONTINUES

The chart below illustrates UK industrial production in levels and its growth over the year. Nosedive. According to jka online blog, the sector breakdown was:

Consumer non durables, (-5%), textiles (-5.4%) and food and drink (-4%) were relatively lightly hit. Fuel products, the only sector showing growth up by just 1%.

Auf Wiedersehen, Rebecca Wilder"

We need to spend more time looking at how an unlikely set of countries have coped relatively well

TO BE NOTED: From A Fistful Of Euros:

"The Helvetic Tiger by P O Neill

There’s a country in Europe with a large financial sector, big exposure to foreign trade, a floating exchange rate, and politics complicated by 4 communities within its governing structure. But enough about the United Kingdom. The latest statistical release from Eurostat covering GDP up to Q4 2008 is fascinating, not least because they also include the EFTA non-EU members, meaning Iceland, Switzerland, and Norway. A few things stand out.

First, if you were looking for a country that should have been hammered by the financial crisis, it would be one fitting the profile of our opening sentence but with the additional disadvantages of being outside the EU umbrella and being the whipping boy for the G20 complaints about tax and regulatory havens. Step forward Switzerland, which despite that baggage saw Q4 GDP just 0.3 percentage points down from Q3 or 0.1 percentage points down compared to Q4 2007. Given how disastrous Q4 was on average, that would be a decent performance even before taking account of Switzerland’s high vulnerabilty due to the previously mentioned factors.

Second: anyone want to guess which country among the EU + EFTA collection (with seasonally adjusted data) was the worst performing in Q4 last year compared to Q3? That would be Ireland. Even on an annual basis, only a couple of the Baltics turn in a worse performance, and they didn’t begin from as seemingly secure position as Ireland did. And the Irish crisis is at its core a fiscal crisis, which has still not been convincingly addressed. Just as well those G20 enhancements to the IMF lending capacity could cover a rich European country with cap in hand.

Finally, one other country deserves mention for keeping the show on the road in the face of predictions of gloom: Greece. Analysts look at the public debt numbers and think it can’t dodge a crisis. But it did dodge a recession in 2008, despite political chaos. Maybe there’s a Hellenic Tiger as well.

Message: politicians are in the business of pretending that the dire circumstances are due to events beyond their control. But even in a global crisis, there is significant country variation in impact. We need to spend more time looking at how an unlikely set of countries have coped relatively well."

"To put it bluntly, the Fed is punishing saving and rewarding spending and debt. "

Trader's Narrative with an excellent post:

"The Federal Reserve made a bold move and lowered rates effectively to zero. Here’s the full statement:

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth

and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

It took a few years but finally they’ve moved in front of the bond market. As I’ve been saying for more than a year, the Fed allowed the bond market to get way ahead of it and then started to play a game of catch up where they would lower only to see the 90 day Treasury bill rate slip lower still.

To put it bluntly, the Fed is punishing saving and rewarding spending and debt ( TRUE ). With inflation running at ~1% anyone who saves money is a chump. Many money market funds now have a negative return (due to MERs).

Anyone who goes in debt to the gills wins. Isn’t that how we got into this mess? you might ask. Well, who said common sense had anything to do with monetary policy ( ITS ESSENCE IS PARADOX ).

Believe it or not, the US now has a lower interest rate than Japan. And the lowest rate since records have been kept.

After Japan, the lowest rate is claimed by Switzerland after the Swiss national bank cut their benchmark rate to 0.5% last week. Then Canada at 1.5%. Follow the link to see more global central bank rates."

As I've said, all life is Paradoxical, otherwise Godel's Proof wouldn't apply in our universe.

“Switzerland is absolutely not immune to global developments, especially not as regards the financial crisis and the economy.”

Switzerland Watch on Bloomberg:

"Dec. 1 (Bloomberg) -- An isolated European country with an economy geared toward finance and winter sports is no longer a monetary bastion as credit evaporates around the globe. Banks teeter, the once-impregnable currency depreciates and a proudly independent people question whether a centuries-old go-it-alone strategy can survive.

Even Switzerland is wondering if it’s immune to the forces ravaging Iceland.

The drama playing out in the Nordic nation, whose economy the International Monetary Fund says may shrink about 10 percent next year, offers a cautionary tale for the no less fiercely independent Swiss. While they are in far better shape, their status as custodians of the world’s wealth is under threat by a global economic upheaval they can’t control and miscues by the banks that made them great.

“The Swiss model of isolationism is not an advantage” in the current environment, says Michael Baer, 46, the great- grandson of Julius Baer, founder of Switzerland’s largest independent wealth manager. “Switzerland is absolutely not immune to global developments, especially not as regards the financial crisis and the economy.”

Heads up for terrorism laws. No more going-it-alone, perhaps. I wonder if this will lead to a much more integrated financial system worldwide. Some countries have tried building up their financial independence recently, but has it worked?

"Baer -- scion of a legendary family in one of the world’s oldest financial centers -- has moved his own business to one of the youngest: In 2006, he set up Baer Capital Partners in Dubai to tap Middle Eastern wealth.

For the 7.6 million Swiss, signs of stress are evident amid a cataclysm in world markets that has besieged them with reasons to doubt a splendid isolation dating back to medieval times."

What other changes would this lead to?

Fact/Parody Jinx Unleashed!

Alphaville might have well cursed this great country of ours:

"By Electric Dragon / FT Onion

Hank Paulson, the US Treasury Secretary, yesterday announced a far-reaching expansion of the Troubled Asset Relief Program (TARP). Everyone would be allowed access to the Federal Reserve’s discount window and the Treasury would, in return, accept anything as collateral.

The latest expansion of the Treasury’s bail-out plan comes as it is clear that the world economy is is trouble."

Read on. I don't blame Electric Dragon, except for his silly name. Dragons are real creatures, not toys. But Alphaville has done us serious damage:

Posted by Don the libertarian Democrat [report]

I’m sorry . This isn’t funny.

From Felix Salmon:

http://www.portfolio.com/views/blogs/market-movers/2008/11/11/who-would-bail-out-switzerlands-banks

“This seems right to me. And also very scary, because of one country: Switzerland.

UBS has a $2 trillion balance sheet; Credit Suisse has another trillion on top of that. Call it $3 trillion between the two of them, which is about ten times Switzerland’s GDP of $300 billion or so. Now that’s what I call too big to save. Oh, and did I mention? At the end of 2007, Credit Suisse was levered by more than 40 times; UBS was levered by more than 64 times. A 16% fall in UBS’s assets would wipe out not only all of its equity but 100% of Swiss GDP on top.

This could be the first make-or-break economic issue to face Barack Obama: if it came to it, would Treasury bail out UBS? I’m sure it would try to get European governments to pitch in too, and the Swiss, of course, to the extent that they can. But I’m sure I’m not the only person praying that UBS never comes close enough to the edge that we have to find out.”

“What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity.”

Can we all agree,at least, that these guarantees become explicit and clearly defined? This is beginning to sound to me like Dr. Strangelove:

Strangelove explains the principles behind the Doomsday Device, which he says is “simple to understand… credible and convincing.” He also points out that a Doomsday Device kept secret has no value as a deterrent; the Soviet Ambassador admits that his government had installed it a few days before they were going to announce it publicly to the world, because Kissoff “likes surprises”.

“But I’m sure I’m not the only person praying that UBS never comes close enough to the edge that we have to find out.”

Um, have we implicitly guaranteed the entire banking planet?

Please remember what I call the Fact/Parody Jinx: If you print parody in a factual paper, it will come true. God help you if you’ve unleashed this terrible jinx on my country.

"What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity. "

Here's an interesting exchange involving a few of my favorite people, Felix Salmon, Willem Buiter, and John Hempton. Let's begin here:

"There is a wonderful (simply wonderful) paper by Willem Buiter and Anne Siebert on the Icelandic banking crisis.

It’s the sort of paper that puts the lie to the line “nobody expects the Spanish Inquisition” because the core part of the paper was written – under contract – to the Icelandic Central Bank. All agreed that the contents were “too hot” and the academic authors agreed to secrecy.

Now that the worst has happened there is less need for secrecy so the paper has been published along with policy prescriptions for Iceland.

Ok – well and good.

Their explanation was that it doesn’t matter whether the Icelandic banks were solvent or insolvent – there was a simple problem that the banks were large compared to the Icelandic economy and the governments could not conceivably bail them out. As a result a run on one of them would collapse them all.

I will express an opinion on one – and one only. I think Kaupthing – which was by far the most aggressive purchaser of foreign assets – was probably insolvent.

Anyway the lesson was that a country could not afford to have banks whose liquidity they could not guarantee in a run. If the banks were so big you could not guarantee the liquidity then the banks were set up to fail."

Somehow, this seems obvious, but it's not.

"Of course there is one remaining country with banks that are large-relative-to-the-economy – and that is the UK. RBOS and Barclays are both enormous and - at best opaque.

Now do American taxpayers want to pick up UBS or Barclays? I don’t think in the end they will have any choice. The banks will fail or they won’t. And if they fail – well I hate to say it – but the new administration will be stuck with it. I guess UBS will lose its tax avoidance business in the process… and a few American rich folk can help pay for it all with their back taxes... unfortunately the risks to the system are bigger than that..."

Wait a minute. Are we implicitly agreeing to guarantee the whole world?

Now Felix Salmon:

"Richard Baldwin of VoxEU gives us a sneak preview of a new article by Jon Danielsson:

In this crisis, the strength of a bank's balance sheet is of little consequence. What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity. Therefore, the size of the state relative to the size of the banks becomes the crucial factor. If the banks become too big to save, their failure becomes a self-fulfilling prophecy.

This seems right to me. And also very scary, because of one country: Switzerland."

Here we go again with implicit and explicit guarantees.

"This could be the first make-or-break economic issue to face Barack Obama: if it came to it, would Treasury bail out UBS? I'm sure it would try to get European governments to pitch in too, and the Swiss, of course, to the extent that they can. But I'm sure I'm not the only person praying that UBS never comes close enough to the edge that we have to find out."

Here's my reply:

Posted: Nov 12 2008 10:03am ET

"What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity."

Can we all agree,at least, that these guarantees become explicit and clearly defined? This is beginning to sound to me like Dr. Strangelove:

Strangelove explains the principles behind the Doomsday Device, which he says is "simple to understand... credible and convincing." He also points out that a Doomsday Device kept secret has no value as a deterrent; the Soviet Ambassador admits that his government had installed it a few days before they were going to announce it publicly to the world, because Kissoff "likes surprises".

"But I'm sure I'm not the only person praying that UBS never comes close enough to the edge that we have to find out."

Um, have we implicitly guaranteed the entire banking planet?

By DonthelibertarianDemocrat