This chart shows that the shares of St.Galler Kantonalbank have underperformed UBS (which had solved its issues with the DoJ in 2009 by paying USD 780m) substantially in the last 3-4 weeks. The reason for this of course could be the possibility of a situation like that at Wegelin developing and/or a large fine courtesy of the US DoJ arriving on the doormat of St.Galler KB.
The uncertainity and high possibility of substantial fines have led to a >10% underperformance versus UBS.
As I took part in a lecture by the SRI Head at ZKB (Zürcher Kantonalbank) yesterday as CIIA candidate, in which the impact of corporate governance and unfolding bad news was discussed, this seemed noteworthy as an example of problems caused by mismanagement. Had the corporate governance been geared towards sustainable client relationships (taxed assets only policy) this roadbump would have been avoided.
What this also clearly showed me: Even though ZKB is one of the experts in sustainable and responsible investment, the management obviously didn’t adhere to sustainable client selection in the past. This shows me that the dangers must tend to develop in such a way that it is not easily possible to identify them even for experts and analyst teams that are assumed to adhere to SRI. Or put another way: What was fine for 10, 30 or 50 years can change in the space of months and years. Active management can catch that, but I question if SRI active management can do so more efficiently, any more than other active management. If it can, where’s the evidence? (Intesting study about the current benchmark for sustainable investing, the DJSGI is skewed towards large cap companies and the tech sector when compared to the DJ Global Index.)
Another bank that seems to be in the focus of the DOJ could be Bank Coop judging by its performance in the last month. [Update: In fact they are a subsidiary of Basler KB (Ticker: BSKP) which is being investigated by the DOJ. I assume Bank Coop shareholders feel uneasy about what happens if there’s a larger than expected fine or sudden US Dollar clearing problem as happened at Bank Wegelin]:
I would assume that the leaver list has made its way to the market one way or the other. Interesting to see that both these small banks have seen roughly 10% underperformance vs UBS. Even adjusting for a higher small cap beta that seems to signal a special reason for investor caution.
The market doesn’t seem to be worried about the impact of fines on Credit Suisse, even though they will probably face a substantial one.
A last noteworthy fact: St. Galler KB has NOT outperformed UBS in the last 5 years. You would have lost 30% of your money in both shares. The supposedly conservative and stable, even boring, state-owned Kantonalbank vs UBS with its bonus culture, large fines and bailout. Makes you wonder.
Then I looked at Bank Coop:
You would have LOST MORE money with Bank Coop than with the virtually non-stop headline-making UBS.