Reuters Investigates

Behind the scenes at UBS

Emma Thomasson and Edward Taylor tell the inside story of UBS’s turbulent week in today’s second special report “How a rogue trader crashed UBS.”

UBS chief Oswald Gruebel’s decision to resign after the bank said a rogue trader lost as much as $2.3 billion was not just a response to the immediate crisis. It was also an admission that the bank’s latest scandal has effectively undone all his efforts over the past two years to lobby against tougher bank regulations.

The alleged rogue trades have killed any remaining ambitions UBS might have to compete with the titans of Wall Street. They also cast a huge shadow across the entire industry and make tough new regulations far more likely, as the 67-year-old hinted in a memo to staff after he quit. “That it was possible for one of our traders in London to inflict a multi-billion loss on our bank through unauthorised trading shocked me, as it did everyone else, deeply. This incident has worldwide repercussions, including political ones,” he wrote.

After a round of job cuts, the recent events sparked some gallows humor in the banking world. As one senior banker in Zurich put it:

“The joke going around is that Gruebel didn’t need to sack 3,500 people to save 2 billion. He could have just sacked ONE.”

UBS had only recently started to win back the trust of its wealthy private banking clients after risky bets on subprime mortgages came close to felling it in the financial crisis of 2008, as this graphic shows:

Nevada’s Big Bet

By Brian Grow

What happens in Nevada, stays in Nevada. Literally. Especially when it comes to Nevada shell companies.

That’s the gist of our latest special report in the SHELL GAMES series, “Nevada’s big bet on secrecy.”

The story takes a close look at how changes to Nevada’s incorporation laws a decade ago have made it a haven for U.S. shell companies, as well as a hub for current executives of mass-incorporators who previously went to prison, in large part for using Nevada shell companies for illegal activities.

The state’s liberal incorporation laws – which allow for nominee officers and directors and a higher degree of liability protection than any other state – are a magnet for questionable corporate behavior, it appears.

“Nevada’s Big Bet on Secrecy” had some immediate impact: Ross Miller, Nevada’s Secretary of State, said in August that he planned to introduce a bill which would bar former felons from running mass-incorporators. In September, his office announced a new Corporate Ownership Fraud Task Force, in collaboration with the Internal Revenue Service and the Nevada Attorney General’s office, based in part on data contained in questions posed by Reuters.

The data are sure to raise eye-brows. Reuters found four former felons who run or until recently ran three mass-incorporators in the state which have formed or represented more than 14,000 companies. Over 3,000 of those firms have been the subject of state and federal tax liens and civil judgements, or have been named in federal civil and criminal litigation.

Stress testing the UAW

By Deepa Seetharaman

Today’s special report from Detroit, “Crunch time for America’s richest union,” takes a close look at the finances of the historic United Auto Workers union.

Over its 76 years, the UAW has built up a more than $1 billion war chest that has proven to be its big stick at the negotiating table and on the political stage.

Most of the UAW’s wealth sits in its strike fund, which stood at $763 million at end 2010. That money can only be used to fund strikes unless UAW representatives approve a change to the constitution, a step possible every four years.

The sheer size of the strike fund hides the weakening of the UAW’s finances, particularly since 2007, a period when the U.S. auto industry nearly collapsed and membership fell by about a fifth.

At first glance, the UAW’s financial reports show that overall cash receipts and disbursements have fallen almost exactly in tandem. But a deeper look shows that since 2007, the UAW has relied more and more on selling its investments to offset the sharp drop in dues, its largest source of annual funding.

As shown in the graphic below, in 2007 dues represented more than half the UAW’s incoming revenue, while investment and assets sales were just over 6 percent, according to U.S. Labor Department filings. By 2010, dues composed 43 percent of the UAW’s income, while sales of investments and assets were 23 percent.