It doesn't make a whole lot of intuitive sense, on its face. The investment banks are up to their eyeballs in structured products and quantitative strategies, while the big global universal banks are heavily diversified among different products and countries. Yet it's the latter which are making headlines today: both Citigroup and UBS are writing down $3 billion or so on their fixed-income portfolios.
Heads don't seem to be rolling at Supertanker Citi – yet. At UBS, by contrast, Huw Jenkins is out as head of the investment bank, along with 1,500 of his colleagues.
UBS is much smaller than Citi, of course, and therefore less able to suffer a $3 billion writedown. And it's not as though the likes of Merrill Lynch, Bear Stearns, and Lehman Brothers have managed to get through this credit crisis exactly unscathed. The fact is that banks are in the lending business, that loans are their assets, and that when a whopping great subset of the credit markets plunges in value, those assets are going to fall. It's the nature of the beast, and it's a very good idea to come clean now.
But that said, the likes of Bear Stearns and Morgan Stanley are losing money because they made a bet and the bet didn't pay off. UBS and Citigroup, by contrast, are losing money because they're too big to be able to manage their risk nimbly and even profit from credit-market volatility in the way that Goldman Sachs has done. Investment banks like Salomon Brothers, Dillon Read and SG Warburg might have great reputations, but ultimately their rudders are simply too small to be able to steer something the size of Citigroup or UBS out of trouble. Indeed, it looks very much as though the investment bank if anything was responsible for steering the good ship UBS into trouble. Maybe they should stick to Brazilian equities.