UBS increases use of credit derivatives

Swiss investment bank UBS Warburg hedged around 30% of its corporate and institutional lending in 2001 using credit derivatives and other credit instruments. The inceased focus on credit risk follows the record number of global corporate defaults in 2001.

A UBS spokesman told RiskNews that the greater emphasis on credit risk management was part of the more “aggressive” risk management policy the bank has been pursuing in the last few years. The bank’s overall credit derivatives portfolio increased by nearly 100% from the previous year. UBS’s 2001 annual report showed the total notional amount of credit derivatives outstanding growing to Sfr79.3 billion at end December 2001, from Sfr38.5 billion in December 2000.

The bank said the declining global credit environment in 2001, which saw the highest number of defaults since 1991, had prompted its credit risk management strategy. The amount of losses attributed to UBS’s credit exposure dropped to Sfr375 million in 2001, compared with Sfr565 million in 2000.

The strategy of diversifying its risk exposure “positions UBS relatively well for any continued turbulence in the international credit markets”, the bank said. The bank also trimmed its corporate and institutional lending business, reducing its total lending by Sfr24.7 billion.