Swiss bank UBS increased the amount it said it had lost on rogue equity trades to $2.3 billion on Sunday and Chief Executive Oswald Gruebel said the alleged fraud would have consequences for strategy and possibly also for himself.
“It is obvious that these incidents will have an influence on the strategy of the investment bank,” a visibly chastened Gruebel told Swiss television, adding that the firm would present a new strategy for its investment bank soon.
“I will bear all the consequences of the incident. They will be announced as soon as we put them in practice,” he said.
UBS stunned markets on Thursday when it announced unauthorised trades had lost it some $2 billion. London trader Kweku Adoboli was charged on Friday with fraud and false accounting dating back to 2008.
UBS said in a statement on Sunday the trader concealed “unauthorised speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months” by creating fictitious hedging positions in internal systems.
“The loss arising from this matter is $2.3 billion. As previously stated, no client positions were affected,” it said.
Global stock markets have been extremely volatile in recent months, plunging on concerns over euro zone and U.S. debt crises and then rebounding on hopes for their resolution.
BUCK STOPS WITH GRUEBEL?
The loss is a disaster for the reputation of Switzerland’s biggest bank, which had just started to recover after it almost collapsed during the financial crisis and faced a damaging U.S. investigation into aiding wealthy Americans to dodge taxes.
“Loss even more. Reads like they’re making excuses,” Helvea analyst Peter Thorne said of the UBS statement in an e-mail.
The new scandal has prompted calls for UBS’s top managers to step down and for its investment bank to be split into a separate unit from its core wealth management business.
Chris Wheeler, bank analyst at Mediobanca, said there would be pressure on UBS to address the investment bank fast.
“That had been planned anyway for the investor day on November 17 and there may be pressure on them to accelerate that.”
Gruebel, who was brought out of retirement in 2009 to turn the bank around, was quoted in a newspaper on Sunday as saying he was not considering quitting over the crisis, but said it was up to the board to decide.
In a memo to staff on Sunday, he said: “Ultimately, the buck stops with me. I and the rest of senior management are responsible for dealing with wrongdoing.”
Swiss newspapers quoted unnamed insiders as saying the UBS board and important shareholders such as the Singapore sovereign wealth fund still backed Gruebel, with immediate changes the last thing the bank needs and an obvious successor lacking.
CONFIDENCE, SECURITY, DISCRETION?
The bank, whose three keys logo symbolise “confidence, security, discretion,” has for now pulled its “We will not rest” global advertising campaign that was designed by advertising agency Publicis to try to rebuild its image.
Meanwhile, UBS client advisers have been writing to customers to reassure them of the underlying financial strength of the bank despite the trading loss, a spokesman said.
“That we now suffer this setback at this point in our efforts to improve our reputation is very disappointing. This incident also sets us back somewhat in our capital-building efforts,” Gruebel said in his memo to staff.
“However, I wish to remind you that our fundamental strengths as a firm remain intact… we remain one of the best-capitalised banks in the industry.
UBS said its board of directors had set up a committee chaired by independent director David Sidwell, former chief financial officer at Morgan Stanley, to conduct an independent investigation into the trades and the bank’s control systems.
A source close to the bank said the trades involved positions with a notional value of about $10 billion.
The bank said it had covered the risk resulting from the unauthorised trades, and its equities business was again operating normally within previously defined risk limits.
It said the trader had allegedly concealed the fact his trades violated UBS risk limits by executing fake exchange-traded fund (ETFs) positions.
“Following inquiries directed to him by UBS control functions that were reviewing his positions, the trader revealed his unauthorised activity,” the bank said.
ETFs are index funds listed on an exchange and can be traded just like regular stocks. They try to replicate index performances and offer lower costs than actively managed funds, but regulators have warned about risks from some complex ETFs.
The instruments involved in the UBS case are similar to those that Jerome Kerviel, the rogue trader at Societe Generale, traded when he racked up a $6.7 billion loss in unauthorised deals in 2008.
Christoph Blocher, vice-president of the right-wing Swiss People’s Party (SVP) — the country’s biggest — renewed his calls for a splitting off of the investment bank.
“One has to seriously examine a ban on investment banking for commercial banks,” he told the SonntagsZeitung newspaper, adding his party might team up with the center-left Social Democrats to push for such a move.