UBS AG (UBSN)’s directors will meet in Singapore, home to the Swiss bank’s biggest shareholder, this week following the disclosure of a $2.3 billion loss from unauthorized trading, according to two people with knowledge of the situation.
The board of Switzerland’s largest bank will review the loss and possible management changes, said one of the people, who declined to be named because the gathering is private. The regular meeting was scheduled before the loss emerged, and coincides with the Singapore Formula One Grand Prix, where the firm will be entertaining clients.
The Government of Singapore Investment Corp., the sovereign wealth fund that is the company’s largest investor, said its senior management met with UBS Chief Executive Officer Oswald Gruebel in Singapore today to discuss the “alleged fraudulent trading” that led to the loss. GIC said yesterday it offset losses on its UBS stake, which it bought before the 2008 financial crisis, with other investments.
“GIC expressed disappointment and concern about the lapses and urged UBS to take firm action to restore confidence in the bank,” the fund said in an e-mailed statement.
Carsten Kengeter, UBS’s head of investment banking, told employees the Zurich-based lender is “doing everything” to address shortcomings in its risk controls.
“We all share a sense of anger and frustration,” he wrote in a memo to employees as the bank said the size of the loss rose by $300 million. “We are doing everything in our power to address the frameworks, practices and procedures that should have worked better and strengthen their enforcement.”
Kengeter, who joined UBS in 2008 to rebuild its fixed income unit after it racked up record losses during the credit crisis, is among top executives that may face pressure to step down after the loss exposed flaws in the bank’s risk controls.
Gruebel, 67, who was recruited out of retirement in 2009 to help turn around UBS after record losses and a U.S. tax scandal, has said he will stay. Earlier in his career, he earned the moniker “Saint Ossie” in Switzerland for helping to restore Credit Suisse Group AG’s profit and reputation, and for trading acumen that included spotting the subprime debacle early.
“It is very difficult to build and maintain a system which protects us effectively against every possible likelihood of attack, but we will not rest until we have controls that are as watertight as possible,” Kengeter, 44, said in the memo, which was obtained by Bloomberg News. “Continued vigilance will be key to ensuring we avoid future failures.”
A spokesman for UBS in London confirmed the contents of the memo. The stock fell 1 percent to 9.97 francs as of 2:17 p.m. in Swiss trading. The shares dropped 11 percent to 9.75 francs on the day the bank announced the loss, the biggest decline since March 2009, before rebounding by 5.2 percent on Sept. 16.
The loss, first estimated on Sept. 15 at $2 billion, came from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures over the past three months, the Zurich-based bank said in a statement on Sept. 18.
“The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio,” UBS said in the statement. The magnitude of the risk was masked by “fictitious positions,” it said.
UBS made the disclosures two days after London police charged a 31-year-old trader with fraud and false accounting.
GIC, which manages more than $100 billion of Singapore’s reserves, said it has fully recovered the total value of its portfolio since the financial crisis. UBS shares have lost about half their value since Lehman Brothers Holdings Inc. filed for bankruptcy in September 2008.
“In retrospect, as we had said in late 2008, the timing for the investment could have been better,” GIC said in a statement late yesterday in response to a letter to Today newspaper by a reader. “On the other hand, GIC also made good investment decisions during the same period.”
GIC will keep its investment in the Swiss bank “for many years to come” and will only consider selling if there are attractive offers, Tony Tan, then deputy chairman of the Singapore sovereign wealth fund, said in a Jan. 29 interview. Tan has left GIC and was sworn in as Singapore’s seventh president on Sept. 1.
“GIC’s view of UBS’ fundamental strength as a well- capitalized bank with a strong private wealth management franchise remains unchanged,” the fund said in today’s statement.
The trading incident at UBS “is a reminder that things can still happen though they’re in it for the long term,” said Song Seng Wun, a Singapore-based economist at CIMB Research Pte. “Investing in a key financial institution like UBS will pay off, but it will be bumpy for a few years.”
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