Friday, November 25, 2011


That's what risk management comes down to. Probabilties.

The CEO of Wegelin & Co. clearly understands this. In this article, I think he makes the best quote I've heard in a while on the topic of managing risk.

It's conceptually simple, yet difficult in practice. You have to constantly calculate and re-calculate the probability of a favorable outcome, and when you have the advantage, press it HARD. When you've lost the advantage, then you don't bet. You will not always win using this system, but you'll win significantly more than you lose (based on outcome). That's what is doing here. They've lost the advantage, so they refuse to make the bet.

Will this affect some of their customers? Of course. However, they are clearly on the side of bank secrecy and that's fine. They are forward and upfront about that. The risk of having to expose their customers with US holdings is now greater than it had previously been. As Mr. Hummler noted,
"My responsibility toward clients has to include any kind of probability, and if I see a real threat then we have to act." This is the kind of thinking we should all get from our fiduciaries! The risk may be small, but it is non-zero. The penalties are very real, and the overall exposure is incalculable, as well as the increased reputational risk of giving up your customers like UBS. I'd say the advantage has been, or will be, lost!!

Something to think about. Until next time...

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