UBS Newsletter for Banks and Financial Institutions Autumn 2008News for Banks                                        Rebui...
SolutionsThe sea may be calm but the freight rates are volatileBlue Sea thinkingA new index on sea-freight derivatives hel...
© UBS 2008. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.      ...
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News For Banks - Sep 2008 - UBS Blue Sea Index - Freight Derivatives - ilija Murisic


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News For Banks - Sep 2008 - UBS Blue Sea Index - Freight Derivatives - ilija Murisic

Keywords: Freight, Shipping, FFA, China, Port Congestion Factor, Commodities, Trading, Derivatives, Structured Products, Hybrids, UBS, Baltic Exchange

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News For Banks - Sep 2008 - UBS Blue Sea Index - Freight Derivatives - ilija Murisic

  1. 1. UBS Newsletter for Banks and Financial Institutions Autumn 2008News for Banks Rebuilding trust There will be much to discuss at SIBOS approach to delivering equity structured 2008. Last year, the banking industry was products lets advisors create the exact gaining momentum. This year, it is rebuild- solution that their client is looking for ing trust. There is no more important task. (pages 16 –17). Certain solutions, though, As no bank is an island, the first step to- continue to build on tradition. Our annual wards bolstering our industry’s credibility seminar for partner banks (pages 12–13) is to restore trust between financial insti- is now in its thirty-first year. In a time of tutions. This is more than a matter of re- upheaval, I like to think that such events furbishing balance sheets. It is about build- help to forge the trust that will underpin ing confidence in the financial system by our industry’s recovery. strengthening its operational infrastruc- ture. And it involves overhauling the com- plex web of institutional relationships that make that infrastructure function. Network management has a vital part to play in that agenda. In this SIBOS edi- Stephan Zimmermann2 Network management tion of News for Banks, we show (on pag- Chief Operations Officer The future of custody; the network es 5 – 6) how we have fine-tuned our own UBS Global Wealth Management & Business Banking reloaded; and real-time reporting approach to relationship management to9 Analysts in action get a more integrated picture of our coun- Research feeds into products terparties. We believe that our efforts will10 Talent-spotter result in additional opportunities for both How UBS went offshoring ourselves and the institutions we do busi-12 Cloudy outlook ness with. Meanwhile, we continue to in- The view from Wolfsberg vest in our platform. Offshoring is often14 Reserves seminar sold simply as a response to cost pressures Where central bankers convene but we prefer to see our service centres in15 Blue sea thought India and Poland as sources of fresh talent Indexing the world’s sea freight (pages 10 –11). For us, the ultimate meas-16 Made to measure ure of success in offshoring lies in how Bespoke structured products far we can hone our effectiveness and, of18 In brief course, pass on the benefits to our busi- News from around the world ness partners. Adroit use of technology can also help to build confidence. In the back office, better reporting systems (see pages 7– 8) could reduce the scope for errors and mis- trust. In the front office, an innovative
  2. 2. SolutionsThe sea may be calm but the freight rates are volatileBlue Sea thinkingA new index on sea-freight derivatives helps investors tap into the China storyIn the same week that UBS launched on time. The upshot is a rising trend in also incorporates a “Port Congestion Fac-its Blue Sea index on freight derivatives, freight rates, coupled with spectacular vol- tor” that takes into account the effect onthe 203,512-tonne bulk carrier China atility; the benchmark Baltic Exchange sea freight derivative prices of loading or un-Steel Team was booked to carry iron ore freight index for dry commodities sagged loading delays in more than 60 iron orefrom Brazil to China. At a record-break- by more than a third between November and coal ports $303,000 per day, the freight rate last year and mid-January 2008 on fears The index is aimed primarily at investorswas more than three times higher than of a US recession, although it has since who are interested in freight as a genericthe ship’s last fixture, just one month pre- bounced back. asset class. In addition, shipowners andviously. China Steel Team is one of fewer That volatility, of course, has already charterers could use the index to hedgethan 600 Capesize bulk carriers in the attracted banks, hedge funds, and other their total exposure to freight rates. Forworld. And as the name of this particu- financial institutions. So far, would-be this purpose, sub-indices are also available.lar one suggests, China’s prodigious appe- investors have looked to the existing mar- These are based on the three categories oftite for raw materials is keeping all of them kets for sea-freight derivatives, which are bulk carriers that comprise the main index,busy. That’s not surprising, when you con- based mainly on futures and forwards on namely the Capesize giants and the hand-sider that Baosteel, China’s leading steel the principal reference indices. What was ier-sized Panamax and Supramax types.producer, needs 150 ship-loads of ore lacking, however, was a packaged instru- It’s too early to say which types ofevery year to feed its blast furnaces. ment that offered a balanced exposure to investor will make the most intensive use Statistics like these explain why sea a representative spectrum of the dry-bulk of the new index. But Blue Sea has cer-freight rates are rocketing, particularly for freight market. It was this gap that UBS tainly captured the attention of industrydry bulk cargoes such as iron ore or coal. sought to fill when it launched its Blue Sea experts. Lloyds List, the longest-standingAccording to Simpson Spence & Young, a Index on May 22. daily newspaper for the maritime industry,consultancy, average dry bulk freight rates commented as follows: “This new UBSreached almost $220,000 per day in May, Congestion factor initiative deserves to be watched as it mayup from $80,000 or below in January UBS Blue Sea is the first fully integrated in- introduce a new level of sophistication toand a previous long-term average of dex to be benchmarked on the most ac- the freight derivatives market by opening$15,000 – $20,000. Capacity shortage is tively traded dry-bulk forward freight it up to investors who are not necessarilyresponsible for part of this squeeze but agreements. FFAs are non-standardized freight professionals. The Blue Sea Index isa lack of tonnage is not the whole story. over-the-counter forward contracts based indeed blue sky thinking.”Even if the 185 or so Capesizers on order on one of several underlying freight indi-could be delivered tomorrow, ports and ces. They are agreed between two parties Ilija Murisiccargo terminals are too choked with ship- for a specific route, for a specific delivery UBS Investment Bank, Hybrid Derivatives Tradingping to allow them to load and unload rate and a specific vessel type. The index UBS News for Banks / Autumn 2008 15
  3. 3. © UBS 2008. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. When you team up with a leading service provider for financial institutions, you profit from front-to-back expertise for all your banking business, allowing you to optimize your entire value chain. We leverage our global capabilities to reduce your costs and add greater scale and scope to your services, whether cash, currency, securities services, asset management, private banking, corporate finance or trade & export finance. Our dedicated specialists will deliver customized solutions to serve your needs. So you can concentrate on your core competencies while benefiting from the resources of a global partner. You & Us. For further information call +41-44-239 80 08 or visit Printed in Switzerland. August 2008. 82319E-0803 Certain products and services may not be available to residents of certain jurisdictions. Please consult the restrictions relating to the specific product or service for further information. Issued and approved by UBS AG. Services offered in the UK are regulated by the FSA. Services offered from Switzerland are regulated by the SFBC. © UBS 2008. All rights reserved.Ad_NewsforBanks.indd 1 23.1.2008 11:45:29 Uhr