May 7, 2008

On the UBS letter

About a week ago, my father, worried about the financial trouble at UBS, asked me, his “economist” son, if he should take out the money he has there. “Yes”, I answered. Obviously, I was kidding. It’s all gonna turn out fine I thought.

Well, not so fast. Yesterday, we all received that letter from UBS’ Wealth Management & Business Banking to let us know that they had the situation under control. Are they fearing a serious bank run à la Northern Rock? If anything, this letter will make people even more worried, and could instore panic, as Sebastian explained below.

The rational behaviour, after receiving a letter like this, would be to go the bank, withdraw all your money, and put it in another bank. This would obviously be the non-cooperative outcome, leading to a series of unfortunate events. This letter is meant to achieve the optimal outcome, the cooperative one, where people leave there money there and it gradually becomes business as usual for UBS.

As Sebastian pointed out, this is Switzerland, not England or the US. I don’t see people running to the bank like crazy. People seem to trust their bank, or their government, who would take the situation under control so no one would be affected.
Where else could I put my money anyway? Credit Suisse? Gimme a break!


cosi said...

A few days ago, I got a phone call from my UBS "financial advisor" - a lady I saw a few years ago to open a student's account. She was trying to convince me to invest my savings in 3ème pillier and other things I do not have a clue about. Of course, I pointed out that the uncertainty about my future stream of income dictates me to stay as liquid as possible, that's why I deposit my money for practically negative real interest rates (I used less technical jargon, though) When the conversation ended, I though: "UBS must really be in ze merde if they call me trying to leverage on my limited savings. But maybe it was just a coincidence". Well, it ain't so.

Dany said...

I remember when I just arrive to Geneva on September last year, after one month of travelling in the Middle East with no idea about subprime crises or whatever was happening in the western world.

I went to UBS to open my student account, and I asked the guy that was giving me recommendations how to invest my squalid savings… he said: “Before I was always recommending this investment that was yielding high interest rate with almost no risk. Now I do not recommend it any more” and he put a cross in the US mortgages investment…

if all the investors (with a lot more money than I) were advised to put their capital in this, is not difficult to imagine why they are withdrawing massively right now…