In which Mr ABS ponders what went wrong at UBS, and prepares to reinvent himself as a distressed debt specialist.

UBS is a surprising casualty of the structured finance market. Whenever I used to speak to their clients I was told it was virtually impossible to secure a loan from the investment bank. Its structured finance team was minute. And yet, UBS has managed to pile up $38bn of losses.

How can this be? I hear from a friend at UBS that it has something to do with their purchase of Goldman Sachs’ CDO exposures when GS decided to exit the subprime market.

If this is true (which it may not be), then at the risk of appearing over-simplistic, there are two lessons to be learnt: be very cautious whenever a GS banker wants to sell you a piece of paper; and don’t listen to a UBS banker when he points you in the way of a good deal.

With hindsight, UBS’s recruitment strategy also seems questionable. Under Wilson Lee, the former head of their real estate division, my friend tells me the CMBS team remained small as Lee apparently thought (correctly it now seems) that the market had become too competitive and the margins didn’t reflect the amount of risk. However, management bought in a team from Credit Suisse for top dollar over the summer and ousted Lee before Christmas.

There is one point, however, where UBS appears to have excelled, and this is in not disclosing to the market the extent of its full losses before securing new capital. It avoided the risk of a run on the bank, but I doubt the new shareholders are particularly happy with their investment.

My UBS friend is in a bleak mood. His bonus for last year was small and paid in shares. Now he is more worried about keeping his job.

Luqman Arnorld, meanwhile, is joining my list of 2008 banking heroes (just behind Jérôme Kerviel). Arnold, who a few years ago was forced out of UBS, has recently been building a stake in the bank and seems happy to settle old accounts with his former employer even if it means criticising a strategy that he helped put in place when he was part of the management team. I cannot comment on whether it is Arnold’s personal money that is at risk in this venture – if it isn’t, that is what I would call true panache.

Closer to home, things are getting uncertain in my new shop. Some divisions could be downsized, but there’s talk of a distressed fund where I could potentially ‘add value.’

Once, in the distant past, I worked on some NPL deals, but my recollections are very vague. Although I was pretty junior at the time, I might soon have to claim that I invented the stuff if I want to avoid another game of musical chairs.