Enterprise Risk Management Essay

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Contents Introduction 1 Literature review 2 Research Methodology 6 Analysis and findings 7 A. Financial crisis background 7 B. Were UBS losses risk management failure? 7 1. UBS losses 7 2. What were wrong with risk identification and measurement in UBS? 8 Conclusion 13 UBS’s Crisis of Disclosure: A Case Study 15 Introduction “The great housing-fueled market bubble couldn’t burst, could it? The best Wall Street minds and their best risk-management tools failed to see the crash coming”. (Nocera, J., New York Times, January 2009) The financial crisis began in 2007 has caused damage to overall economy, known as liquidity crisis. In Switzerland, when Union Bank of Swiss (UBS) AG reported its full-year 2007 loss of CHF 4,384 million in almost five years, the economists compared it with “a subprime drama goes to Europe” and suggested a further loss next year. In fact, on Monday, 9 February 2009, UBS announced that it lost nearly CHF 20 billion in 2008, the biggest loss in the country’s history, despite a rescue plan that the Swiss government injected CHF 6 billion in new capital into UBS and lent 54 billion dollars to the bank to transfer its non-liquid assets into a separate fund (AFP 2009). UBS is one specific victim of the current financial crisis. It differed from the other bank that also suffered losses in the United Kingdom or United State of America (US) because its main headquarter is in Switzerland, a neutral country. According to International Monetary Fund, Switzerland is on the top of richest countries in the world by per capita gross domestic product, in which the banking contributed 12.5%, much higher than other countries. In addition, UBS is the second largest bank in Europe, “the world’s biggest manager of other people’s money” (Economists 2007), also “the leading global investment banking and securities firm” (UBS homepage). Thus, the

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