Poor Sergio Ermotti was having a pretty good day today, with UBS’s stock up and clients more or less happy with the new business plan of “make 180% of your income on DVA and spend 140% of it on comp.” And then this went and happened:
UBS agreed to pay $12 million on Tuesday to settle accusations that it failed to oversee millions of short-sale trades over the last five years.
The Financial Industry Regulatory Authority, or Finra, accused the embattled Swiss bank of a “systemic supervisory failure.” The fine is among the stiffer penalties recently paid to Finra, Wall Street’s self regulator.
“The fine reflected broad gaps in their compliance system,” J. Bradley Bennett, Finra’s enforcement chief, said in an interview. “I think it’s very significant.”
Ordinarily it would be hard to get all that worked up about violations of Regulation SHO, the U.S.’s semi-prohibition on naked short selling. And that’s all this is, Reg SHO violations: UBS basically did a lot of shorting without properly locating borrowable stock, leaving them with naked shorts and settlement fails. Not great, but relatively benign for this week (or last week!).
Except, this (from the FINRA press release) sounds somehow familiar:
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So far, the trading scandal doesn’t appear to have significantly hurt the confidence of UBS’s wealthy clients, who had pulled hundreds of millions of francs from the bank in 2008 and 2009 after Swiss authorities had to bail out UBS following about $50 billion in securities write-downs. A bruising tax evasion battle with the U.S. also drove clients away. UBS only managed to stem the exodus of clients late last year. [WSJ]
The company said it plans to take “appropriate disciplinary action” against other individuals in the Equities business” as a result of the trading incident. UBS said it also expects to take disciplinary action “against responsible staff in other functions.” [WSJ]
As you may have heard, over the weekend, UBS CEO Oswald Gruebel informed the board that as much fun as this job’s been, he’d like to quit while still ahead. Sergio Ermotti, head of European business, has been named interim CEO and while a candidate for the gig before the whole Kweku Adoboli incident, the bank isn’t set on him running the place for the long term (“He takes clients out, he’s got a nice tan, but he doesn’t have the charisma to run a place like UBS and to cope with the risk,” one analyst said in July). So, a search is underway, both internally and externally, neither scenario thrilling anyone (an outsider CEO would be tough since next year they’ll be getting an outsider CEO in Axel Weber, while an insider would be someone who was there when shit went down), and a total of one name being proposed in the last 3 days. Continue reading »
UBS trader Kweku Adoboli, accused over the Swiss banking giant’s $2.3 billion losses from unauthorized trades, was “sorry beyond words,” his attorney said Thursday. [NYP]
