Speculation grows on shakeup at UBS over rogue trading

16th September 2011, Comments 0 comments

Speculation grew Friday that key managers at Swiss banking giant UBS may resign and that major job cuts were looming after the bank was hit by rogue trading that lost it $2 billion.

The bank revealed on Thursday that a trader had carried out unauthorised trades, and that it may be forced to report a loss in the third quarter due to the damages incurred by these fraudulent trade.

Chief executive Oswald Gruebel and investment banking chief Carsten Kengeter were expected to resign over the affair, Swiss daily Tages-Anzeiger said.

Speculation had already been rife on possible successors for Gruebel after the bank in July named former Bundesbank chief Axel Weber as its next chairman to replace Kaspar Villiger who was also brought in during the financial crisis to rebuild the bank.

Gruebel, a German who was previously at the helm of Credit Suisse, took over the reins of UBS at the height of the financial crisis when the bank was struggling to recover after losing billions of francs and turning to state aid.

Zuercher Kantonalbank analyst Claude Zehnder pointed to the bank's exposure to US hedge fund Long Term Capital Management in the 1990s which led to a writeoff of 950 million francs (then $690 million), and noted that the chairman then had resigned over the losses.

"I can imagine that some heads will roll over this case," he said.

Meanwhile, a reduction in size of the investment bank is to be announced on November 17 during UBS' investors' day, said newspaper Tages-Anzeiger, quoting sources within the bank.

This could lead to "thousands" of job cuts in the division, it added.

When contacted by AFP, UBS would not comment on the report.

The investment bank has been one of the worst performers of the bank in recent years. Yet, its investment bankers are traditionally also the most highly paid.

For the years 2007 to 2009, the unit posted pre-tax losses of 57.05 billion francs.

In 2008 alone, the investment bank recorded pre-tax losses of 34.3 billion francs, and its last quarterly loss was made in the third quarter of 2010, of 406 million francs.

The ailing unit was already a target of job cuts. Earlier this year, UBS had announced that it would slash 3,500 jobs, 45 percent of which would come from investment bank.

With Thursday's revelations, analysts expect the bank to take another look at the unit.

A loss of this size was likely to have originated from the fixed revenues, currency and commodities department, noted Collins Stewart analysts, adding that there would be strong pressure to examine the size of the business.

Bank Helvea's Peter Thorne believes that the UBS "investment bank is under a lot of pressure because of its past mistakes, poor profitability and the vast amount of capital it consumes."

"UBS has called these 'unauthorised trades' but the suspicion will be that they were trying just a bit too hard to make profits in the unit to justify its existence," he added.

British police charged Friday trader Kweku Adoboli over a $2 billion fraud at Swiss bank UBS and he was to appear in court later in the day, a spokesman said.

The 31-year-old equities trader and the son of a retired Ghanaian United Nations official, was charged with fraud by abuse of position and false accounting.

© 2011 AFP

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