UBS executives resign amid deepening crisis

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UBS senior management resigns
The logo of the Swiss banking group UBS is displayed outside their head office in London's financial district. The European bank with the greatest losses from the credit crisis is rumoured to be the next bank to implement another round of large scale job cuts. Photo - Daniel Berehulak/Getty Images

The fallout from the alleged rogue trading scandal linked toKweku Adobolicontinued as senior management heads roll in the investment banking division ofUBS.

The co-heads of global equities, Francois Gouws and Yassine Bouhara, resigned while a handful of others faced “disciplinary action”, the Swiss bank stated, as it attempted to draw a line under the alleged affair which the bank has said caused $2.3bn of losses.

Oswald Grbel, executive of the embattled Swiss bank,quit last monthto “bear full responsibility for what occurs” at the bank, which has 6,000 staff in the UK.

Adoboli has not entered a plea to the four charges of fraud and false accounting he faces and remains in custody until his next scheduled appearance at London magistrates court on 20 October.

An existing director, Sergio Ermotti, is temporarily working as the CEO while a successor is sought. In a memo to staff last week he said: “Our internal investigation indicates that risk and operational systems did detect unauthorised or unexplained activity but this was not sufficiently investigated nor was appropriate action taken to ensure existing controls were enforced.”

The chief executive of the investment banking arm Carsten Kengeter remained in his role on Wednesday night and said he had accepted the resignations of the two co-heads of global equities, traditionally one of the most highly regarded divisions of the Swiss bank.

In an attempt to cover the cracks at the top of the bank’s flagship division, UBS accelerated the arrival of Mike Stewart from Merrill Lynch where he had been head of global equities. He will now become the global head of equities at UBS in attempt to bolster confidence of staff, concerned about the impact of loss they will suffer on their end of year bonuses.

Kengeter also sent a memo to staff saying: “A number of front office staff have been suspended pending further disciplinary action. We will also be taking appropriate disciplinary measures against responsible individuals in our operations and control functions in the coming weeks”.

The bank did not name the staff that were facing disciplinary action or reveal what action might be taken. But it is thought that eight of the most senior staff at the bank are involved and City sources believe that even more could face action before the inquiry into Adoboli’s alleged “unauthorised trading” is fully completed.

“Under the circumstances, including the fact that independent investigations are ongoing, we are not providing further details on the unauthorised trading incident at this time,” the bank said.

WORLDWIDE REPERCUSSIONS

The scale of the loss at UBS has created fears for thousands of jobs as the bank is a major employer in the London. It is under pressure from domestic regulators to scale back its “casino” investment banking arm.

When Grbel quit after being hauled out of retirement in 2009 when the bank was crippled by the credit crunch, he said: “This incident has worldwide repercussions, including political ones. I did not take the step of resigning lightly.”

His successors promised to adopt a more “client-centric strategy” and to accelerate an ongoing review of UBS’s investment banking activities, which could create more jobs in London.

Some 3,500 cuts had been announced across the group even before the trading loss emerged,although this week the bank reversed its earlier warning that taking the $2.3bn hit would cause the entire bank to report a loss in the third quarter. Instead, it now expects a “modest” profit, helped in part by the fall in the value of its debt.

Kengeter warned staff further changes were due. “We continue to align our strategy with the new economic and regulatory environment so that we can contribute meaningfully to the distinctive strengths of UBS as a group,” he said. “This means further investing in areas that make economic and strategic sense, exiting those that don’t, and finding new ways to deliver much more effectively in others. I look forward to working with you to achieve this.”

INVESTMENT BANK NECESSITY

UBS insists it is going to stick with investment banking in the wake of a humiliating and costly control failure, and the resultant departure of Grbel.

UBS group chairman Kaspar Villiger says: “The investment bank will continue to strengthen its alignment with UBS’s wealth management businesses, in addition to serving its corporate, sovereign and other institutional clients.”

The bank appears to believe that it needs an investment banking division at least big enough to be an execution desk for the private bank, otherwise the division will suffer as a price-taker from third-party providers.

Sources: Guardian, euromoney

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