UBS AG, Switzerland's biggest bank, said Francois Gouws and Yassine Bouhara resigned as co-heads of global equities following the $2.3 billion unauthorized trading loss detected last month.
“Their resignations come as they assume overall responsibility for the effective management of the equities business,” the Zurich-based bank said in an e-mailed statement today. Mike Stewart, hired from Bank of America Corp. in July, will become the sole head of equities effective today, UBS said.
Sergio Ermotti, who took over as interim chief executive officer at UBS last month, said in a memo to employees today that while the bank's systems detected “unauthorized or unexplained activity,” this was not “sufficiently” investigated and existing controls weren't appropriately enforced. The loss resulted from trading in Standard & Poor's 500, DAX and EuroStoxx index futures.
“This is simply not acceptable,” Ermotti, 51, said in the memo obtained by Bloomberg. “UBS will not tolerate any misconduct that damages the bank's reputation.”
The bank will take “firm disciplinary action” against other individuals in equities and across other divisions, Ermotti said, adding that steps have also been taken to “address the failures identified.”
‘Inevitable' Change
UBS said yesterday that it will have a “modest” third- quarter profit as gains from wider credit spreads and the sale of bonds cushioned the trading loss. Ermotti replaced Oswald Gruebel, who resigned Sept. 24, saying the trading incident has “worldwide repercussions.”
[More: UBS CEO Gruebel resigns following $2.3B trading scandal]
The change in equities leadership “was inevitable, in my opinion even more inevitable than the departure of the CEO,” said Tom Kirchmaier, a fellow at the financial markets group at the London School of Economics. “Let's hope that Mike Stewart has learnt the right lessons about improving governance and control structures.”
The bank plans to reorganize the investment bank to focus on “advisory, capital markets and client flow and solutions businesses,” which will allow UBS to “deliver less volatile results while using less risk,” Chief Financial Officer Tom Naratil told investors at a presentation in London yesterday.
Trading Losses
Kweku Adoboli, 31, the UBS trader charged with fraud and false accounting that may have resulted in the loss, remains in custody in London. He has yet to enter a plea.
UBS's long positions in DAX, EuroStoxx and S&P 500 futures began to increase at the beginning of July, accelerating around the end of the month and peaking in early August, Naratil said.
The long positions then “rapidly decreased” and were reversed into short positions in mid-August. Losses, which were “limited” until the end of July, were boosted by market declines and reached about $2 billion in mid-August, he said. They remained near that level until they were discovered and the positions closed last month, Naratil said.
“Serious lapses of potentially both risk management and leadership have occurred, and in the final analysis somebody must be held responsible,” said Chris Roebuck, a visiting professor at the Cass Business school in London. “To not to have taken rapid action would have been perceived both by investors, regulators and the market in itself a further leadership failure.”
