UBS CEO quits over rogue trader scandal

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ZURICH, Switzerland — Oswald Gruebel resigned on Saturday as chief executive of troubled Swiss bank UBS, saying he took the blame for the $2.3 billion loss run up in alleged rogue trading in its investment banking division.

The bank, which said it would beef up risk controls under an accelerated restructuring of that part of its business, named its Europe, Middle East and Africa head Sergio Ermotti -- only at UBS since April -- to replace Gruebel on an interim basis.

Gruebel, appointed in 2009 to rebuild Switzerland's flagship bank after a near collapse, said in a message to staff that the trading loss announced last week had shocked him deeply.

"I did not take the step of resigning lightly. I am convinced that it is in the best interests of UBS to approach the future with a new leader at the top," he said.

Gruebel, a 67-year-old banking veteran who helped turn around rival Credit Suisse last decade, was brought out of retirement to try to revamp UBS after it almost collapsed in 2008 under the weight of more than $50 billion lost on toxic assets.

UBS Chairman Kaspar Villiger said the board of directors, who met in Singapore this week, had not lost confidence in Gruebel despite the scandal and had tried to convince him to stay on to allow a more orderly succession next year.

Rogue UBS trader is 'sorry beyond words'

Chris Wheeler, analyst at Mediobanca said he was "very surprised" the board had agreed to let Gruebel go given the restructuring already under way at the investment bank.

"It certainly puts at risk what they were trying to achieve, given it's a recovery stock and it has had four CEOs now since 2007. It could see a lot of people capitulate on their hope for an early recovery for the stock," he said.

UBS shares fell more than 10 percent since the scandal broke on September 15, trading at their lowest level since shortly after Gruebel took over in early 2009, but they rose 4.8 percent on Friday on hopes the board would agree a major restructuring.

Ermotti, who Villiger said was a strong candidate to replace Gruebel permanently, told a conference call with journalists the bank would review its risk controls at group level, and an internal investigation of what went wrong at the investment bank should conclude in 10 to 14 days.

Opportunity out of disaster
A 51-year-old from Switzerland's Italian-speaking region of Ticino, he was already being groomed as a possible successor since he joined UBS in April from UniCredit after he was passed over in a management reshuffle at the Italian bank following the departure of CEO Alessandro Profumo.

Villiger said he had no doubts about the future of investment bank head Carsten Kengeter, whose fate had also hung in the balance, saying he and his team had done an "excellent job" to limit losses from the unauthorized trades by quickly closing the positions.

He contrasted their actions with hesitation that caused Societe Generale to run up a 4.9 billion euros ($6.6 billion) loss on rogue trades by Jerome Kerviel three years ago that felled that bank's then-chairman and CEO Daniel Bouton.

Villiger declined to comment on whether Kengeter could still be a candidate to take over as CEO, saying only the board was looking at both internal and external candidates and should decide on a permanent replacement within six months.

Villiger, a former Swiss finance minister who also faced calls to resign over the scandal, said the bank was sticking to plans for former Bundesbank chief Axel Weber to join the board next year and take over as chairman in 2013, adding Weber would be involved in the choice of a new CEO.

He said he did not favor splitting off investment banking from the rest of the bank, but said the board wanted Ermotti to speed up an overhaul of the division to better align it with UBS's core business of managing wealthy clients' money.

"We want to turn this disaster into an opportunity," he said.

Ermotti said more details of changes at the division, which would scale back but not exit its fixed income business and could see limited extra job cuts, would be revealed at an investor day already planned for November 17 in New York.

UBS had already said in August it would axe 3,500 more jobs to shave 2 billion Swiss francs off annual costs, with almost half from the investment bank, which had grown to almost 18,000 staff as Kengeter tried to rebuild the battered franchise.

'Turnaround' legacy
The alleged rogue trader, Kweku Adoboli, was "sorry beyond words for what had happened" and was "appalled at the scale of the consequences of his disastrous miscalculations," his lawyer Patrick Gibb said at a court hearing in London on Thursday.

The 31-year old did not enter a plea and was remanded in custody until a further hearing next month.

Clients pulled nearly 400 billion Swiss francs ($442 billion) -- almost a fifth of client assets -- from UBS after the bank was battered in the financial crisis to post the biggest annual corporate loss in Swiss history and as it fourght a prolonged dispute with the U.S. tax authorities.

Villiger said Gruebel had achieved an "impressive turnaround and strengthened UBS fundamentally," but admitted that clients had been scared off by the rogue trading affair.

Gruebel, who had already foregone his bonus for the last two years, would get no severance package as he had resigned.

UBS's largest shareholder, Singapore sovereign wealth fund GIC, met the bank's management earlier in the week and in a rare statement expressed its disappointment. It demanded firm action to restore confidence and details of how the bank would tighten risk controls. It declined to comment on Gruebel's resignation.

GIC had not been consulted over Saturday's management change, Villiger said.

UBS's board meeting, one of four regular ones per year, took place in Singapore ahead of the UBS-sponsored Singapore Formula One motor racing Grand Prix on Sunday, when executives will be trying to reassure big clients.

Asked whether UBS might reconsider its Formula One sponsorship now motor racing fan Gruebel is gone, Ermotti, who flew back to Zurich overnight, said the deal was a long-term commitment so he could not review it even if he wanted to.

In 2007, former UBS CEO Peter Wuffli was ousted at a board meeting in Spain to coincide with the America's Cup yachting event there, in which UBS was sponsoring a team.

Copyright 2011 Thomson Reuters.

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Rogue UBS trader is 'sorry beyond words'

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Oli Scarff / Getty Images

Kweku Adoboli arrives at the City of London Magistrates Court on Thursday.

The rogue UBS trader who allegedly lost $2.3 billion singlehandedly in unauthorized trades will be held in custody for an additional month, news reports said Thursday.

Kweku Adoboli, 31, appeared in a packed London courtroom on Thursday, where he did not enter a plea, and spoke only to confirm his name and address, reports Reuters. Lawyer Patrick Gibbs did most of the talking, saying Adoboli was “sorry beyond words for what happened.”

"He stands now appalled at the scale of the consequences of his disastrous miscalculations," Gibbs said, according to the BBC.

Adoboli was there to face an additional count of fraud beyond the initial charges of falsified records and fraud that lead to some $1.5 billion in trading losses for UBS. The newest charge, according to prosecutor David Levy, is for offenses that allegedly took place between October 1, 2008 and December 31, 2010, Reuters said. The preliminary fraud charges are for offenses that are alleged to have taken place between January 1 and September 14 of 2011.

Chief magistrate Alison Gowan said that Mr. Adoboli would return to the court on October 20 for a committal hearing, according to Reuters.

Mr. Adoboli’s losses are among the highest ever recorded among so-called rogue traders. He was trumped by French trader Jerome Kerviel, who in 2008 lost $6 billion for Societe General, and also by Yasuo Hamanaka, who lost $2.6 billion for Sumitomo Corporation in the 1990s.

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Alleged rogue trader: 'I need a miracle'

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AppId is over the quota AppId is over the quota GENEVA — Swiss bank UBS is expected to shrink its investment bank business — source of a $2 billion rogue trading loss — and could fire senior executives as it tries to retain worried private clients and avert a ratings downgrade.

Analysts said the massive loss, announced on Thursday, was a significant blow for UBS's investment bank, which has struggled, like others in the industry, against falling markets and tough new regulation as well as the soaring Swiss franc.

The Tages-Anzeiger newspaper, citing UBS insiders, said the bank would announce a major restructuring, to include thousands more job cuts, at a planned investor day on Nov. 17. A UBS spokesman declined to comment.

"We expect UBS will come under material pressure from shareholders and FINMA to review its investment bank business ... the trading loss being the final straw, leading to material restructuring," said JP Morgan analysts in a note.

The trader blamed for losing the $2 billion, named in media reports as Kweku Adoboli, 31, was being questioned by police on suspicion of fraud for a second day Friday, according to a report in The Telegraph newspaper.

'Mistake or wrongful judgement'
Before he was arrested, the paper said Adoboli, UBS director of exchange traded funds, changed his Facebook page status to "I need a miracle."

His father John, a retired United Nations employee, said his son had made "a mistake or wrongful judgment," The Telegraph reported.

"We are all here reading all the materials and all the things being said about him. The family is heartbroken because this is not our way of life," he added. "I brought them up to be God-fearing and to appreciate decency. Growing up and through to school days they were very brilliant and respectful."

Adoboli, who was working for UBS in London, is originally from Ghana, but was educated at a $31,000-a-year boarding school in Britain, and later studied at Nottingham University, the Telegraph said.

The consequences of his alleged actions could be significant for UBS, which declined to give any new information on the case early on Friday.

Late on Thursday, Moody's said it had placed the bank's long-term debt and deposit ratings on review for a possible downgrade, a further blow to the bank.

"The losses call into question the group's ability to successfully complete the rebuilding of its investment banking operations," it said.

The $2 billion loss effectively canceled out the first year of savings from a recently-announced cost-cutting plan involving the loss of 3,500 jobs.

Hoped to save $2.3 billion
It had hoped to make an annual $2.3 billion saving under the scheme detailed last month.

"We believe that yesterday's event could have personnel consequences on senior management level, which in turn could lead to adjustments to UBS' business portfolio," said Vontobel analyst Teresa Nielsen.

"The exit from non-core businesses inside the investment bank could be accelerated," she added.

UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank. The bank has had a history of major risk management glitches followed by repeated pledges to fix risk systems.

Chief Executive Oswald Gruebel, himself a former trader who was brought out of retirement in 2009 to try to turn UBS around, is reviewing the size and structure of the investment bank, particularly its fixed income division, after he was forced to pull back from ambitious profit targets.

Gruebel had aggressively expanded the investment bank to almost 18,000 staff from 16,500 a year ago before global financial crises hit.

In a Sunday newspaper interview before the scandal broke, Gruebel said how the bank would be restructured depended on how Swiss regulators planned to implement tough new capital standards that parliament is expected to approve next week.

"What is clear is that we must become more efficient. That will prompt major criticism because of reductions, offshoring, outsourcing of jobs and activities," he said.

UBS stock, which fell 10.8 percent on Thursday to end at its lowest close since March 2009, was up 1.9 percent at 9.9 francs early Friday in line with the same rise on the European banking sector index.

New losses in UBS's investment bank risk scaring rich clients and prompting a further flight from its huge private bank, the core of its business that used to be the world's biggest wealth manager but has slipped to third place.

UBS isn't the first to be hit by a massive loss allegedly caused by a single rogue trader.

Societe Generale, France's second-largest bank, stunned investors in 2008 when it revealed that one of its staff had lost the bank €4.9 billion ($6.7 billion) through a complex scheme of unauthorized trades.

The trader, Jerome Kerviel, was convicted in October 2010 on charges of forgery, breach of trust and unauthorized computer use for covering up bets worth nearly €50 billion between late 2007 and early 2008. He was also banned for life from working in the financial industry and ordered to pay back the the vast amount he had caused his employer to lose.

His fraud eclipsed that of previous so-called "rogue traders."

One of the most infamous was Nick Leeson, a British trader working for Barings Bank in Singapore.

He made unauthorized futures trades that lost more than $1 billion and led to the vulnerable bank's collapse in 1995.

Leeson served three-and-a-half years of a six-and-a-half year sentence in Singapore.

Msnbc.com staff, Reuters and The Associated Press contributed to this report.

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Alleged UBS rogue trader charged with fraud

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Luke Macgregor / Reuters

Kweku Adoboli leaves City of London Magistrates Court in London. Adoboli appeared in a London court on Friday charged with fraud after Swiss bank UBS said it had lost about $2 billion in unauthorized trades. The court ordered him to be detained until a further hearing next week.

The 31-year-old UBS AG trader accused of costing the bank $2 billion in losses through unauthorized trades was charged Friday with fraud and false accounting dating back to 2008.

London police released a statement saying Kweku Adoboli had been charged with two offenses. Reuters said a tearful Adoboli appeared before magistrates later Friday for a brief hearing in which he was remanded into police custody until Sept. 22.

UBS AG has come under increasing pressure to explain how one of its traders allegedly could have gotten away with the trades without triggering suspicion at the bank.

The Wall Street Journal reported Friday that Adoboli admitted to making the trades after risk-control officers at the bank discovered them. The Journal attributed the information to a person familiar with the situation.

The Journal said that the risk-control officers unearthed the trades on Wednesday, the day before Adoboli was arrested. The person familiar with the situation told the newspaper that it's not certain when the bank first discovered the trades.

The BBC reported that it was Adoboli himself who alerted the bank to the trades. Reuters said the bank declined to comment on that report.

In the meantime, investors and experts were scratching their heads about how UBS could have let the trades slip through its control nets.

"Until UBS has explained in detail how such a significant loss due to unauthorized trading could happen, and how the problem will be solved, confidence will remain impaired," Andreas Venditti, an analyst at Zuercher Kantonalbank, told Reuters.

Ratings agencies Moody's and Standard & Poor's have placed UBS' credit grade on review for possible downgrade, Reuters said. And some Swiss politicians have called for UBS senior management to take the blow for the losses, which the bank has said could lead it to report a loss for the third quarter of 2011.

UBS has not released any further public statements since announcing Thursday that it had discovered a loss due to unauthorized trading by an investment bank trader.

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Rogue trader loses $2 billion, banking giant says

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AppId is over the quota AppId is over the quota GENEVA — Rogue trading has struck again, costing one of Europe's largest banks up to $2 billion and dealing a blow to its reputation.

London police said Thursday they had arrested 31-year-old Kweku Adoboli, a trader at UBS AG, in connection with alleged unauthorized trades that caused a loss of some $2 billion at the bank. UBS declined to confirm his name.

The bank said the trades would likely cause it to report a loss in the third quarter of 2011. "The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion," the bank said in a statement just before the stock market opened.

"It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected," it added.

Worse, it raised concerns among investors about the bank's controls and risk management. Shares of UBS tumbled in European trading.

"No rogue trader works in a vacuum, and UBS's management must have taken its eye off the ball to allow a trader to operate on this scale without sufficient supervision and without the systems to monitor his trades," Simon Morris, a partner at UK law firm CMS Cameron McKenna, told Reuters.

"They, and the shareholders, must now pay the bill for this laxness."

The Financial Times said Adoboli was a trader in the bank's exchange traded funds business in London.The newspaper also reported that Adoboli's boss, John Hughes, may have resigned. There was no confirmation of that and a spokesman for the bank told the FT: "For the time being, we have nothing to add."

The newspaper said Adoboli and Hughes were directors in UBS's Global Synthetic Equities trading desk.

Adoboli's profile on the professional networking site LinkedIn showed he spent the past five years working at UBS's European Equity Trading division after three years as a trade support analyst for the bank, the Associated Press reported. He graduated from England's University of Nottingham in 2003, where he studied computer science and management.

A public records search for Adoboli showed that he lives just off of London's Brick Lane, a busy street of curry houses, bars and vintage fashion shops only a few blocks from UBS's U.K. headquarters, which was cordoned off Thursday.

Reuters said his 1,000 pound ($1,600) a month apartment was once a Jewish soup kitchen. The news agency said a man who identified himself as Adoboli's landlord described him as well-dressed and a good tenant, although he was behind on his rent a couple of times.

"He lived here for about 2-1/2 years. He was a very, very nice guy. I have not got a bad word to say about him. He was not the tidiest person but he was a good tenant," Reuters said Philip Octave told reporters gathered outside the apartment in London. "He was very well spoken, his references all passed and he dressed smartly."

Tax evasion case
Peter Thorne, a London-based equities analyst at Helvea, said the loss was financially manageable for UBS, Switzerland's biggest bank.

But he said it was a blow to the reputation of UBS and its management, which oversaw heavy subprime losses during the financial crisis and an embarrassing U.S. tax evasion case in recent years.

"It is amazing that this is still possible," added ZKB trading analyst Claude Zehnder. "They obviously have a problem with risk management. Even when the amount isn't so high it is once more a loss of confidence that casts UBS in a poor light."

"With this they are losing a lot of credit that they had regained with effort," he said.

Cutting jobs
UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank.

UBS announced last month it is to ax 3,500 jobs to shave $2.3 billion off annual costs as it joins rival investment banks in reversing the post-crisis hiring binge and preparing for a tough few years.

Investment banks worldwide have been hit by slow trading due to the debt problems in the euro zone and United States, as well as regulations aimed at forcing banks to hold more capital to protect them from future shocks after the 2008 global financial crisis.

UBS expects to book a restructuring charge due to the job cuts of some 550 million francs, and around 450 million francs of this will be booked in the second half of the year, with the majority recognized in the third quarter.

UBS isn't the first to be hit by a massive loss allegedly caused by a single rogue trader.

Societe Generale, France's second-largest bank, stunned investors in 2008 when it revealed that one of its staff had lost the bank €4.9 billion ($6.7 billion) through a complex scheme of unauthorized trades.

The trader, Jerome Kerviel, was convicted in October 2010 on charges of forgery, breach of trust and unauthorized computer use for covering up bets worth nearly €50 billion between late 2007 and early 2008. He was also banned for life from working in the financial industry and ordered to pay back the the vast amount he had caused his employer to lose.

His fraud eclipsed that of previous so-called "rogue traders."

One of the most infamous was Nick Leeson, a British trader working for Barings Bank in Singapore.

He made unauthorized futures trades that lost more than $1 billion and led to the vulnerable bank's collapse in 1995.

Leeson served three-and-a-half years of a six-and-a-half year sentence in Singapore.

Msnbc.com staff, Reuters and The Associated Press contributed to this report.

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Factbox: UBS trader joins rogues' gallery of financial crime

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AppId is over the quota AppId is over the quota Switzerland's UBS AG said it had discovered unauthorized trades by a trader in its investment bank had caused a loss of some $2 billion.

Here are details of major rogue traders of the last two decades:

Oct 2010 - Former Societe Generale trader Jerome Kerviel sentenced to three years in prison by a Paris court for his role in a trading scandal and ordered to reimburse the French bank 4.9 billion euros ($6.7 billion). The 33-year-old was found guilty of breach of trust, computer abuse and forgery.

April 2010 - MF Global employee Evan Dooley indicted on fraud and other charges after racking up $141 million in losses speculating in wheat futures contracts in February 2008. The incident was disclosed in December 2009 when U.S. regulators slapped a $10 million fine on MF Global for lax supervision.

June 2009 - A trader at London-based oil brokerage PVM Oil Futures racked up losses of almost $10 million following a series of unauthorized trades believed to have caused a spike in global crude prices. The trader, named as Steve Perkins, was later banned.

May 2009 - Former Morgan Stanley trader David Redmond banned after building up a big unauthorized oil futures position after a long liquid lunch and then hiding the deals overnight.

February 2009 - Former senior trader at Merrill Lynch in London Alexis Stenfors banned for at least five years for deliberately overvaluing his trading positions to hide his losses, forcing the U.S. bank to make a $456 million writedown.

July 2006 - David Bullen and Vince Ficarra, two former foreign exchange options dealers at National Australia Bank, jailed after a 2004 scandal that cost NAB A$252 million ($187 million). They were found guilty of making false trades to safeguard bonuses and hide losses, and joined other former NAB traders Luke Duffy and Gianni Gray in prison. Bullen had already published "Fake: My life as a rogue trader," about how he had replaced hard drinking and drugs with Buddhism.

March/April 2006 - Hedge fund Amaranth Advisors LLC racked up $6.4 billion in losses from natural gas contracts on NYMEX before folding in 2006. The Commodity Futures Trading Commission later charged Amaranth and its former head trader, Brian Hunter, with trying to manipulate natural gas futures prices.

February 2002 - Allied Irish Bank said rogue trader John Rusnak had defrauded its U.S. subsidiary Allfirst of $691 million. Rusnak sentenced to 7-1/2 years in prison after he admitted devising a scheme that netted him $850,000 in salary and bonuses from 1997 to 2001.

January 2001 - Former chief financial officer of the now-defunct Griffin Trading Co, Scott Szach, charged with diverting more than $5.56 million from a company bank account to a brokerage trading account to fund unauthorized trading in the 18 months before the firm's demise.

March 1998 - Joseph Jett, a former top Kidder Peabody bond trader, accused of creating false profits of $350 million to hide losses and failing to keep proper records, in a scandal that eventually led to the sale of the firm. He was ordered by a judge in September 2007 to repay $8.2 million in losses and was fined $200,000.

June 1996 - Japanese trading house Sumitomo Corp suffers a $2.6 billion loss over 10 years from unauthorized copper trades, primarily by chief trader Yasuo Hamanaka. Sumitomo fired Hamanaka, once dubbed "Mr Five Percent" because his trading team was believed to control five percent of the world's copper trading. He was later jailed for eight years.

September 1995 - Japan's Daiwa Bank suffered a $1.1 billion loss from unauthorized bond trading by Toshihide Iguchi, one of its executives in the United States. He was imprisoned in 1996.

February 1995 - Barings, one of Britain's oldest investment banks, collapses after Nick Leeson, a futures trader in Singapore, lost $1.4 billion in derivatives trading. Leeson was jailed in Singapore. Barings subsequently sold to Dutch bank ING for one pound.

April 1992 - Indian banks and brokers accused of colluding illegally to siphon $1.3 billion from the interbank securities market to fuel a boom on the Bombay Stock Exchange. Top broker Harshad Mehta, the main person accused in the scandal, died in jail during the trial.

Copyright 2011 Thomson Reuters.

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