UBS AG (UBSN), Switzerland’s biggest bank, said Francois Gouws and Yassine Bouhara resigned as co-heads of global equities following last month’s $2.3 billion loss from unauthorized trading.
“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 yesterday. Mike Stewart, hired from Bank of America Corp. in July, will become the sole head of equities, UBS said.
Sergio Ermotti, who replaced Oswald Gruebel as interim chief executive officer last month, is trying to bolster investor confidence in a bank that less than two months ago Gruebel said had “one of the best” risk-management units in the industry. Ermotti said in a memo to employees yesterday that while the bank’s internal systems had detected “unauthorized or unexplained” activity, it wasn’t “sufficiently” probed and controls weren’t enforced.
“Serious lapses of potentially both risk management and leadership have occurred, and 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.”
The shares rose 1.3 percent to 10.64 francs as of 9:52 a.m. in Zurich trading today. The stock has dropped 31 percent this year, compared with the Bloomberg Banks and Financial Services Index’s 31 percent decline.
No ‘Misconduct’ Tolerated
UBS appointed Gouws, 46 and Bouhara, who joined from Deutsche Bank AG, to run the equities business in May 2010, replacing Daniel Coleman, who stepped down in March of that year after more than 24 years at the bank. Gouws has been with UBS for more than 16 years. Officials at UBS declined to provide contact details for either banker.
“UBS will not tolerate any misconduct that damages the bank’s reputation,” Ermotti, 51, said in the memo obtained by Bloomberg. The bank will take disciplinary action against other individuals in equities and across other divisions, he said.
“A number of front office staff” have been suspended pending further disciplinary action, Carsten Kengeter, head of the investment bank, said in a separate memo to staff.
Don Francese will become interim chief operating officer for the equities division, Kengeter said. He pledged to strengthen risk-control at the investment bank and tighten enforcement.
UBS said this week that it will have a “modest” third-quarter profit as gains from wider credit spreads and the sale of bonds cushioned the trading loss.
The change in 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,” to produce less volatile results with less risk, Chief Financial Officer Tom Naratil told investors at a presentation in London two days ago.
The investment bank will aim to “contribute meaningfully” to the strengths of UBS, Kengeter said in the memo. “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.”
Kweku Adoboli, 31, the UBS trader charged with fraud and false accounting that may have resulted in the loss, remains in custody in London pending a further hearing. He has yet to enter a plea. He said through his lawyer he was “sorry beyond words” for his “disastrous miscalculations” when he appeared at the City of London Magistrates’ court on Sept. 22.
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.