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Abstract
On page 13 of its fourth-quarter earnings report, published on February 5, UBS tries to explain a Sfr177 million slump in equity trading revenues. Part of the problem, it says, was the Japanese structured products book, which lost money as volatility increased in December's Nikkei 225 index rally. What it does not is that the rest of the industry suffered too -- and not just at the end of the year. While most banks refuse to publicly disclose whether they incurred losses, four banks that spoke to Risk admitted December had been a tough month. Only UBS has so far publicly acknowledged losses on its exotics book. Despite the losses, only a handful of banks are said to have pulled back from the market, and dealers claim that while coupons may be slightly lower than before, more margin was initially being priced into the products to compensate for the market's structural one-sidedness.