September 26, 2011

UBS’s chief executive Oswald Grubel resigned on Saturday over the rogue trading scandal that cost the firm $2.3 billion under this watch. In what appears to be damage control under the glare of media coverage, Grubel moved swiftly to show the world that the Swiss investment bank is serious about starting with a clean slate.

Though Grubel, 67, came out of retirement to return the investment bank to profitability after the financial crisis when it had to borrow money from Swiss taxpayers, there is speculation that he was forced to resign by UBS's board of directors.

From New York Times DealBook:

For Mr. Grubel, who was nicknamed "Saint Ossie" after restoring Credit Suisse, the move capped a turnaround effort at UBS marred by conflict and setbacks. "I did not take the step of resigning lightly," he told staff in an e-mail. "I am convinced that it is in the best interests of UBS to approach the future with a new leader

UBS tapped Sergio P. Ermotti, head of Europe, the Middle East and Africa for the bank, as chief executive on a interim basis. The board is now looking for a permanent successor, a search that could take up to six months, according to The New York Times.

The question is which candidate will UBS select to run the investment bank? Corporations even as storied as Hewlett Packard, have had trouble finding the right chief executive. According to Bloomberg News today, Carsten Kengeter, 44, who came from Goldman Sachs, is viewed by some at UBS as the favorite of Chairman Kaspar Villiger to succeed Greubel. [The bank may also seek to hire William T. Winters, a former co-head of JPMorgan Chase’s investment bank, who is an American based in London, known for understanding complex instruments.]

According to Bloomberg News:

Villiger told reporters after Gruebel’s departure that Kengeter had done an “excellent job” in covering positions after the loss and that there was no doubt about his future.

In an email last week, Kengeter assured the investment bank’s employees that the bank was reviewing its risk management framework and procedures, and that the bank had enough capital and shouldn’t listen to uninformed media reports.

Now is the time for everyone across the Investment Bank to demonstrate to clients, shareholders, regulators and other stakeholders that we are not going to let a single calculated act of deception deflect us from achieving our long-term strategic goals.

But the incident, which has wiped out all of the bank’s Q3 profits, has tarnished the firm’s reputation and also raised questions about its risk management capabilities. The attempt to portray Kweku Adoboli as a rogue trader in the spirit of Nick Leeson of Barings Bank and Jerome Kerviel of Societe General has lost some credibility with experts who say the trading loss is also reflection upon the bank’s rogue culture.

Also Adoboli, 31, described as a midlevel employee, was charged with fraud and false accounting dating back to 2008, so his ability to carry out the fraud for three years and hide it from his superiors in risk management and compliance, makes it seem like they were clueless.

Meanwhile, the loss on the bank’s Delta One trading desk dealing with trading of index futures on the Standard & Poor’s 500-stock index, the DAX in Frankfurt and the Euro Stoxx 50, has reportedly given ammunition to financial regulators that want banks to hold higher amounts of capital. All of this is leading to a reassessment of risk on trading desks and the potential for stricter regulations on banks.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...