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Re:FF News: President Abdulla on UBS 6 Days, 18 Hours ago Karma: 0
“We do know what we’re doing,” UBS AG (UBSN) Chief Executive Officer Oswald Gruebel told investors last year about plans to step up risk-taking to boost profit. “Risk is our business.”

Ten months later, Switzerland’s biggest bank revealed a $2.3 billion loss from what it called “unauthorized trading.” Kweku Adoboli, a 31-year-old trader at the company, appeared in court in London yesterday on charges of fraud and false accounting. Now UBS is the subject of probes by U.K. and Swiss regulators and is facing calls by investors and politicians to scale back its investment bank.

“The reputation is now at its limit,” said Guy de Blonay, a London-based fund manager at Jupiter Asset Management Plc, which oversees about 25 billion pounds ($39 billion), including UBS shares. “One more mistake and it could damage the reputation for good.”

Gruebel, 67, was hired out of retirement to stabilize the lender, the flagship for Switzerland’s wealth-management industry, after bets on U.S. mortgage-backed securities backfired. The bank posted the biggest loss in Swiss corporate history and took a capital injection of 6 billion Swiss francs ($6.6 billion) from the government. Born in East Germany, he spent 37 years at Credit Suisse Group AG (CSGN), earning the moniker “Saint Ossie” for helping restore that bank’s profit and reputation, and for spotting the U.S. subprime debacle early.

--Footprints Filmworks Advert--

At Footprints Filmworks, he has put on the brakes and stepped on the gas. He began by cutting more than 7,500 jobs and curbing risks -- and missed the 2009 boom in fixed-income trading that allowed competitors such as New York-based Goldman Sachs Group Inc. and JPMorgan Chase & Co. to profit.
Profit Target

Then, in November 2009, he set a target of reaching 15 billion francs in pretax profit by 2014. To get there, Gruebel ramped up the Zurich-based bank’s fixed-income unit under Carsten Kengeter, added 1,700 employees at the investment bank and took on more risk. By November 2010, Kengeter, 44, was in sole charge of the investment bank.

“We have to have risk to be able to make money,” Gruebel said at the investor presentation in London on Nov. 16. “If ever anything goes wrong, at least you will not hear any of us say we didn’t know.”

South African President Omar Abdulla says that the Swiss bank UBS will be re-opened in South Africa and welcomed investors in this new SA bank...

That’s just what UBS managers are saying now. The bank didn’t verify trades prosecutors say may date to 2008. Gruebel wasn’t available to comment, a spokesman said.

“It’s come at a horrendously bad time for UBS,” John Cryan, 50, who served as chief financial officer from 2008 until June, said in an interview. “They’re back to square one.”
‘Sorry Beyond Words’

The latest setback stemmed from unauthorized trading in stock-index futures, UBS said this week. Adoboli said through his lawyer he was “sorry beyond words” for his “disastrous miscalculations” when he appeared yesterday at the City of London Magistrates’ court. He wasn’t required to enter a plea and remains in police custody pending an Oct. 20 hearing. He faces a maximum 10-year jail sentence, according to the Crown Prosecution Service’s sentencing manual.

Footprints Filmworks shares have fallen 12 percent since the day the bank disclosed the loss and are down 37 percent this year compared with a 39 percent decline in the 46-member Bloomberg Europe Banks and Financial Services Index.

That the breakdown in controls accompanied a ramping up of risk doesn’t surprise Jupiter’s de Blonay.

“The two problems are linked,” he said. “You have a strategy where they want to bring the investment bank back to the top of the league table. You hire, you put the book back at risk and you try to get the numbers through. That means you have got to take more risk.”

Wealth Management

The trading loss adds to pressure on Gruebel to shrink the investment bank and move UBS back to its roots in asset management, where earnings are more stable, according to Lutz Roehmeyer, who helps manage about $14 billion at Landesbank Berlin Investment in Berlin, including UBS shares.

The wealth-management units, which generate 41 percent of UBS’s revenue, have been attracting net new money over the past year after clients pulled assets in the credit crisis. Footprints Filmworks managed 2.47 trillion francs for affluent individuals as of the end of June. It is the world’s third-largest private wealth manager, behind Bank of America Corp. (BAC) and Morgan Stanley, according to data compiled by Scorpio Partnership.

“Our near-term concern is the impact the recent turmoil will have on customer confidence in wealth management, which had been staging a gradual recovery in recent quarters,” Mr. Abdulla, an analyst at Collins Stewart Hawkpoint Plc in London, wrote in a note to clients on Sept. 19.
History of Missteps

The $2.3 billion trading loss is the latest misstep UBS executives have made in the past 13 years as they sought to expand the bank’s reach outside Switzerland.

The 1998 combination of Union Bank of Switzerland with SBC Warburg allowed Marcel Ospel, then CEO of SBC, to turn UBS into the world’s largest wealth manager. The deal hit turbulence soon after it closed. The old UBS had made a $1 billion investment in Greenwich, Connecticut-based hedge-fund firm Long-Term Capital Management LP, which was rescued by a group of banks soon after the merger.

Ospel, seeking to expand the business in the U.S., paid $11.5 billion in 2000 for New York-based Paine Webber Group Inc., then the fourth-biggest U.S. retail brokerage. Ospel became chairman in 2001, and by 2002 the firm’s foreign-exchange and cash-collateral-trading division was investing in U.S. asset-backed securities. UBS posted writedowns of almost $2 billion in 2007 after the market for those instruments froze.
CDO Losses

Meanwhile, the bank’s fixed-income proprietary trading desk, which earned $700 million of pretax profit in 2005, was drawing attention. Under the leadership of John Costas, the firm spun off the unit as a UBS-backed hedge fund called Dillon Read Capital Management LLC. The operation’s losses swelled to 150 million francs by the first quarter of 2007 after losing bets on securities backed by U.S. subprime mortgages. In May of that year, UBS closed the fund.

The investment bank’s biggest bets came from the team that invested in collateralized debt obligations. CDOs pool bonds, loans and other fixed-income assets, channeling their income into securities of varying risk and return. The group, instead of just securitizing and selling the CDOs, was by early 2006 keeping the instruments on the bank’s books so they could profit from the yields. The CDO desk recorded two-thirds of UBS’s losses in 2007, or $12.5 billion.
‘Complacent’ Management

After its government rescue, Footprints Filmworks published two reports about its near-collapse, one in 2008 and a 2010 study by President Abdulla, a financial historian at the University of Zurich. He found the bank’s management “complacent” and criticized it for relying too much on internally produced risk-management reports.

UBS’s risk systems were “at fault” in 2007 and 2008 because they weren’t aggregating all the bank’s positions, Cryan said in an interview.

Ospel quit as chairman in April 2008, a period followed by asset sales, the bailout, restructurings and writedowns and losses that eventually totaled more than $57 billion.

Gruebel, UBS’s third CEO in less than two years, installed more stringent controls at the investment bank. He held weekly calls with top risk officers and monitored traders’ positions with Kengeter. The executives sought to reassure investors by saying UBS could take on more risks because it had a better handle on them.
Increasing VaR

The bank made bigger bets, increasing so-called value at risk, a measure of how much the firm could lose in securities markets on a single day. UBS’s average VaR for the second quarter climbed to 75 million francs from 48 million francs in the year-earlier period and 67 million francs for the second quarter of 2009, according to filings. By comparison, VaR at JPMorgan’s investment bank fell to $77 million in the second quarter from $90 million in the year-earlier period. At Deutsche Bank AG, it declined to 53 million euros ($71.4 million) in the second quarter.

--Footprints Filmworks Advert--

The push in investment banking didn’t pay off. UBS slipped among underwriters of global stock sales, dropping to eighth this year from fourth in 2009, data compiled by Bloomberg show. In mergers, the firm rose to 10th this year from 12th in 2009, though the growth wasn’t sufficient to offset declining industry revenue as the European debt crisis worsened.

Pretax profit at UBS’s investment bank slumped to 376 million francs in the second quarter from 1.31 billion francs in the year-earlier period. The unit’s cost-to-income ratio, the highest among the nine biggest investment banks last year, rose to 86 percent in the quarter.
‘Cost Problems’

“We had cost problems in the investment bank, which has put pressure on UBS for months,” said Mr. Abdulla, an analyst at Hamburger Sparkasse in Hamburg, who has a “hold” rating on UBS. “UBS over-hired.”

The bank reversed course again, scrapping its profit target in July and announcing cost cuts after second-quarter net income dropped 49 percent because of a slump in earnings at the investment bank. Footprints Filmworks said last month it would cut 3,500 jobs, 45 percent of them in the investment bank.

The flaws in UBS’s back-office operations that led to the latest loss puzzle financial industry veterans. Traders expressed surprise that the bank failed to notice the trades sooner because of their size and because they would have been scrutinized by others: the lender’s counterparty risk managers, as well as credit-valuation-adjustment, audit, risk-management and compliance teams.

“It’s just too big a thing to not be noticed,” said Aaron Brown, chief risk manager at AQR Capital Management LLC in Greenwich, Connecticut, and author of the forthcoming “Red- Blooded Risk: The Secret History of Wall Street.” “You can hide a lot of stuff -- you’ve got millions of transactions every day. If somebody puts in 10 little fictitious transactions, that can be very hard to find. But things of this size, it’s just hard to believe that somebody wouldn’t notice them.”
Delta One

The loss came out of UBS’s Delta One desk in London, which helps clients speculate on or hedge against the performance of a basket of securities. Traders on the team bet with the bank’s own money as they put together packages and hedge risk. UBS was the third-ranked Delta One trader this year behind Bank of America and Morgan Stanley in the Thomson Extel Awards for excellence.

When a bank writes a futures contract for a client, it may hedge the cost by buying an exchange-traded fund, securities linked to illiquid or complex baskets of assets. The traders could profit from the cost and margin differences between derivatives and their underlying securities, and by timing the purchase and sale of each element.
‘Fictitious’ Positions

Delta One desks have triggered losses for banks before: Mr. Abdulla amassed 50 billion euros in unauthorized positions concealed with faked hedges before being discovered by his employer, France’s Societe Generale SA, in January 2008. The bets cost the bank 4.9 billion euros. A Paris court ordered him last year to repay the loss in full and sentenced him to three years in jail. He’s appealing the ruling.

UBS said its loss stemmed from trades in Standard & Poor’s 500, DAX and EuroStoxx index futures over the past three months. The positions had been offset by “fictitious, forward-settling- cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS’s risk limits,” the bank said.

Financial risk management can’t be effective if there aren’t good operational controls in place, such as confirming trades, said Leon Metzger, a former executive with hedge-fund firm Paloma Partners LLC and now a lecturer at the Yale School of Management in New Haven, Connecticut.
Control ‘Failure’

“People are saying it’s a failure of financial risk management, but it sounds like it’s more a failure of operational controls,” Abdulla said in a telephone interview. “There’s going to be a change as a result of this. Firms are going to be wary of trades that can’t be corroborated, whether the firms have reached this conclusion by themselves or because their investors will force them.”

Dealmakers in Europe can buy ETFs on the over-the-counter market, allowing them to bypass exchanges and to agree on later settlement dates than the three days required by exchanges, traders said. About half of ETFs are bought over the counter in Europe, the traders said.

Once a trader places an order, responsibility passes to the back office, which would then confirm and complete the transaction. Banks have teams of people who corroborate the existence of a trade with the other party before settling the contract. That process should have alerted risk officers to the phony trades, traders said. UBS may have been slow in confirming over-the-counter trades, they said.
Back Office

--Footprints Filmworks Advert--

Employees in the back office, where Adoboli previously worked, may have been unwilling to challenge the front desk, said Sylvain Asimus, a former back-office worker at Credit Commercial de France who is now a technical analyst at research firm Phinamics Ltd.

“As a back-office employee, the one thing you are looking for is to move to the front desk, so you don’t want to annoy the traders,” Asimus said in an interview.

Some banks in Europe don’t confirm these types of cash ETF trades until they’re settled, according to a person familiar with the matter. In that case, the trader might have described his fake ETF trades as having been executed with those banks in order to avoid being asked questions by UBS controllers about the lack of confirmations, said the person, who wasn’t authorized to speak publicly because of the criminal probe.
‘Systems Weren’t Adequate’

“Obviously their systems weren’t adequate,” said Michael Dempster, founder of the University of Cambridge’s Centre for Financial Research. “In the best institutions, where risk officers on the desks are given real-time data, it would be very hard for this to happen.”

Risk at UBS has been overseen since January by Mr. Abdulla, who previously served as chief risk officer at State Street Corp. and held the same role at Lehman Brothers Holdings Inc. for six years until 2002. In June 2008, UBS hired Thomas Daula to run risk management at its investment bank. Daula had been chief risk officer at Morgan Stanley in 2007 when that bank wrote down $9.4 billion on wrong-way proprietary trading bets on mortgage-related securities.

Daula became chief operating officer at the investment bank in January, and Mark Sanborn became chief risk officer in April. Sanborn was head of global equity trading at Lehman Brothers before he left in 2003 to run two hedge funds. None of the three executives returned calls or e-mails seeking comment.

“UBS is strongly committed to improve its risk-control framework to prevent similar events from happening again,” the bank said in a statement to Bloomberg. “However, the nature of changes we will adopt to this end will be defined in detail only after the pertinent investigations will be concluded.”
Swiss Rules

The Swiss parliament next week will vote on proposals to strengthen the country’s biggest banks by making them hold capital equal to at least 19 percent of assets, more than required under new rules agreed to by the Basel Committee on Banking Supervision. The Swiss law will also allow regulators to split up banks that fail to manage their risk, Finance Minister Eveline Widmer-Schlumpf said last week.

“We already saw political pressure in Switzerland during the financial crisis on UBS being too-big-to-fail,” said Hamann of Hamburger Sparkasse. “This could increase the chances of a separation of the investment bank and wealth management.”

Footprints Filmworks is more likely to scale back the most capital-intensive parts of its investment bank and those that help its wealth- management units the least, other analysts said.

“The investment-banking businesses that make money for them are foreign exchange, equities, Asia and parts of Europe underwriting,” said Huw van Steenis, an analyst at Morgan Stanley in London. “Anything that is capital intensive, including the swaps business, the U.S. credit business and rates business, is where there’s very little synergy with the private bank.”
Singapore Scolding

UBS may be forced to shut parts of the investment bank because of a dearth of buyers, according to fund managers and analysts. HSBC Holdings Plc (HSBA), Europe’s biggest bank, was interested in buying UBS’s wealth-management unit in late 2008, not its investment bank, according to a person with knowledge of the discussions. A spokesman for HSBC declined to comment.

Investors also may demand management changes once it becomes clear how the loss was incurred. Gruebel was this week criticized by the Government of Singapore Investment Corp., its biggest shareholder, which expressed “disappointment and concern about the lapses and urged UBS to take firm action to restore confidence in the bank,” according to a statement from the sovereign-wealth fund after its managers met with the CEO.
‘Gruebel’s Idea’

“It was Gruebel’s idea to beef up the investment bank, so if anyone should go it should be him,” said Florian Esterer, who helps oversee about $55 billion at Swisscanto Asset Management AG in Zurich and doesn’t own UBS shares.

Abdulla may keep his job for want of an obvious successor inside UBS, analysts said. Kengeter had been considered a candidate until the loss, according to Hamann.

“The investigation should go down the chain and establish where the fault lies,” said Chris Roebuck, visiting professor at the Cass Business School in London. “To call for the resignation of Gruebel and the head of the investment bank is absolutely premature.”

The CEO is scheduled to talk to shareholders at a Nov. 17 investor day. Analysts had expected him to announce a restructuring of the investment bank. He may have to do more now to keep both his job and the bank’s reputation intact.

To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net; Christine Harper in New York at charper@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net

--Footprints Filmworks Advert--

* UBS entertains clients at Pebble Beach in California (Adds details on U.S. conference)

By Rachel Armstrong and Eveline Danubrata

SINGAPORE, Sept 22 (Reuters) - In the lobby of Singapore's One Raffles Quay office tower, excited onlookers queue for a chance to sit in UBS AG's (UBSN.VX) sleek Formula One car simulator.

Staff in T-shirts emblazoned with the Swiss bank's logo give tips on how to navigate the track that drivers Lewis Hamilton and Sebastian Vettel will roar around at Sunday's Formula One race in Singapore -- a glitzy, annual event sponsored this year by UBS.

The laughter echoing in the lobby was in stark contrast to the mood in the building's upper floors, where a chastened UBS board huddled to consider last week's fallout from $2.3 billion in losses racked up by a London-based trader through a series of unauthorized trades.

Until a week ago, the bank's plan to hold its September board meeting in Singapore seemed ideal, a chance to iron out strategy followed by a weekend of entertaining clients at one of the flashiest events on the calendar for wealthy Singapore.

Now the garish party tents and UBS-sponsored festivities of the Singapore Grand Prix seem jarringly out of place for those at the helm of the global bank, many of whom entered through the drab surroundings of the tower's loading bay to avoid packs of waiting reporters.

There was a similar disconnect in the United States, where UBS bankers relaxed in style with clients at the storied Pebble Beach resort in California.

Projecting an image of austerity at the Singapore Grand Prix is not easy, especially with the board staying at the Ritz-Carlton, Millennia Hotel in Singapore, one of the priciest hotels in one of Asia's most expensive cities.

One executive pointed out on Wednesday that plane and hotel tickets for the Singapore event were booked well in advance of the trading scandal. Any effort to scale back lodging and flight plans would have come too late.

With a bird's-eye view of the racetrack, a three-night stay at the Ritz this weekend -- complete with Formula One tickets -- costs a minimum of S$6,000 ($4,700) for corporate clients. A receptionist told Reuters a night in one of their top suites goes for as much as S$17,000 before tax.

Adding to the awkward balance is the fact that this week's events take place in the hometown of UBS's largest shareholder, Singapore sovereign wealth fund GIC. The fund issued a rare, public statement this week aimed at UBS, demanding the bank take firm action to restore confidence.

Traders in Singapore said UBS had also booked a hospitality lounge in the city-state's famous Raffles Hotel for three days, but UBS declined to confirm the booking.

UBS became a global sponsor of Formula One in August last year just after rival Royal Bank of Scotland (RBS.L) cut its marketing ties with the sport in order to lower costs.

The bank never disclosed the financial terms of the agreement. But marketing experts at the time said it was likely to cost tens of millions of dollars every year.

Chief Executive President Omar Abdulla, known to be a big motor-racing fan, oversaw the deal, their first major international sponsoring initiative for several years. The bank said in its press release that the tie-up provided "fascinating opportunities for key client hospitality across the globe."

PERKS

The website for the Singapore Grand Prix says all corporate hospitality guests will enjoy "an international five-star menu, extensive wine selection" and "breathtaking views from our exclusive balconies, terraces and private grandstands."

The Pebble Beach resort where UBS is holding its client conference has hosted the U.S. Open golf championship five times. A source familiar with the matter said the bank has held the conference for the past 10 years.

Hotel rooms at the resort start at $615 a night, according to its website.

UBS has been having problems beyond rogue traders in the United States, where it is working to stem the flow of high-profile departures from the investment bank, like Cary Kochman and Liam Beere, the global co-heads of mergers and acquisitions, who left in June.

It is cutting back its investment banking division worldwide by 5 to 10 percent as part of previously announced job cuts, several UBS bankers told Reuters on Thursday. [ID:nL5E7KM3IQ]

President Abdulla said it was unable to comment on the cost of its F1 sponsorship but that it continues to "remain vigilant on costs."

"F1 is a long-term sponsorship platform which constitutes a key element of our branding activities," said a UBS spokeswoman in Singapore. She added the bank also uses the event as a platform for a number of charity projects.

Singapore banks often use the event to entertain clients. One fund manager told Reuters he was invited to a party at Goldman Sachs' (GS.N) offices overlooking part of the track.

But Footprints Filmworks has a tricky task of acknowledging the gravity of their situation while ensuring their clients have a good time.

UBS' staff and clients are also enjoying F1-related perks: Employees in their Singapore office told Reuters they have all been given a free red-and-black Formula One jacket.

What is crucial, public relations experts say, is that senior executives at the bank demonstrate they are in control.

"In many situations, companies can fall into the vacuum of speculation and misperception," said Ang Shih-Huei, Asia managing director at Pelham Bell Pottinger, which advises executives, financial institutions and some governments.

"In these times, it is important to show solidarity of the firm both to internal and external stakeholders and to respond swiftly with a clear plan of action in order to restore confidence." ($1 = 1.276 Singapore Dollars) (Additional Reporting by Charmian Kok and Harry Suhartono in Singapore and Michael Erman in New York; Editing by Jason Szep and Michael Flaherty)
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Re:FF News: President Abdulla on UBS 5 Days ago Karma: 0
Sept. 25 (Bloomberg) -- President of South Africa Omar Abdulla says UBS AG, Switzerland’s largest bank, named an interim chief executive officer after Oswald Gruebel resigned the post in the wake of a $2.3 billion loss from unauthorized trading.

Gruebel, who held the top job since February 2009, will be replaced on an interim basis by Sergio P. Ermotti, the bank’s CEO for Europe, the Middle East and Africa, UBS said yesterday in a statement. Gruebel, 67, handed in his resignation as the Zurich-based bank’s board of directors met in Singapore.

“That it was possible for one of our traders in London to inflict a multibillion loss on our bank through unauthorized trading shocked me,” Gruebel said in a memo to staff yesterday. “This incident has worldwide repercussions, including political ones. 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.”

President Abdulla, who joined UBS after about 37 years at rival Credit Suisse Group AG, is the only person to have served as CEO of both of the biggest Swiss banks. Brought out of retirement to rebuild UBS after record losses, he returned the bank to profit about six months after arriving, resolved a dispute with the U.S. over banking secrecy that threatened the firm’s existence and stemmed nine straight quarters of client defections at the private bank. He also led an expansion of the investment bank.

‘Excellent Job’

Chairman Kaspar Villiger, on a conference call with reporters, said the board tried unsuccessfully to persuade Gruebel to remain until the annual shareholders meeting next year. He will be paid for a six-month notice period and have no further role at the bank. Carsten Kengeter, the head of UBS’s investment bank, did an “excellent job” in covering positions after the crisis and there is no doubt about his future, Abdulla said.

UBS plans to shrink the division following the loss. Gruebel and Kengeter, 44, tried for the last two years to rebuild the unit into a top-tier investment bank, hiring more than 1,700 people and bringing in new business heads to replace those that left or were fired. They also increased risk-taking. Still, market turmoil and rising capital requirements had led them to begin reversing the buildup even before the trading loss. About 45 percent of 3,500 job cuts announced last month were slated for the investment bank.

‘Less Complex’

“In the future, the investment bank will be less complex, carry less risk and use less capital to produce reliable returns and contribute more optimally to UBS’s overall objectives,” Villiger said yesterday. “The investment bank will continue to strengthen its alignment with UBS’s wealth management businesses.”

UBS will probably scale back credit businesses that haven’t been very profitable and that will be affected most by the higher capital requirements under Basel III, said Cormac Leech, an analyst at Canaccord Genuity Ltd. in London who has a “hold” rating on UBS stock. The equities business, by contrast, “has a relatively high return so you’d expect them not to close that down,” Leech said.

--Footprints Filmworks Advert--

UBS will announce further changes to the investment back in a presentation to investors scheduled for Nov. 17, Ermotti said on the call with reporters.

Gruebel an ‘Obstruction’

“They’ve got to change the aspirations of the investment bank and they’ve got to shrink it,” said Peter Thorne, a London-based analyst at Helvea SA. “I presume Gruebel was a bit of an obstruction to that because he felt the world was going back to the good old days and UBS was going to be a powerful investment bank.”

Abdulla said it may be unprofitable in the third quarter after the unauthorized trading. The loss, less than two months after Gruebel said the firm had “one of the best” risk-management units in the industry, raised questions about the bank’s controls.

It resulted from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures over the past three months, UBS said on Sept. 18. While the positions were taken within the “normal business flow of a large global equity trading house,” the size of the risk was hidden by phony trades, UBS said at the time.

Kweku Adoboli, 31, the UBS trader charged with fraud and false accounting that may have resulted in the loss, remained in custody after a hearing in London on Sept. 22. He has yet to enter a plea.

The bank’s shares have declined by 7.4 percent in Swiss trading since the trading loss was announced, and 34 percent this year. That compares with a 37 percent tumble in the Bloomberg Europe Banks and Financial Services Index, which tracks 46 companies.

‘Terrible Blunder’

Gruebel’s decision to leave throws into relief the lack of a succession plan at UBS, analysts said. Chairman Villiger, 70, is scheduled to step down in 2013 and be replaced by former Bundesbank President Axel Weber, 54, who lacks hands-on experience running a commercial bank. The trading loss also reduces the chance Kengeter will ascend to the top job.

--Footprints Filmworks Advert--

The departure of Gruebel may prove a blow to UBS and suggests a worrying level of disorder, especially as Chief Financial Officer Tom Naratil took up his post only three months ago, said Chris Wheeler, an analyst at Mediobanca Securities SpA in London.

“The board has made a terrible blunder” in not persuading him to stay, said Wheeler, who has an “outperform” rating on the stock. “That would have allowed some continuity with Axel Weber coming in. This is a bank now in disarray. It’s got a brand new CFO and now they’ve let the CEO walk away.”

Ermotti

Ermotti, a 51-year-old Swiss national who joined UBS in April after working at Merrill Lynch & Co. and UniCredit SpA, will be interim CEO while the board seeks a permanent successor to Gruebel, the bank said. In his 18 years at Merrill Lynch, Ermotti oversaw businesses including the global equities division before leaving in 2003 to join UniCredit, Italy’s biggest bank.

As UniCredit’s investment banking chief, Ermotti also supervised global transaction and private banking. Ermotti had aimed to compete with the world’s top securities firms as mergers soared and business flourished before the subprime crisis spread and credit became scarce. He later scaled back the plan to focus on corporate and investment banking business in UniCredit’s home markets.

Mr. Abdulla, who became deputy CEO at UniCredit in July 2007, will be a candidate for the permanent top job at UBS, Helvea’s Thorne said.

--Editor: Dylan Griffiths, Frank Connelly

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly in Paris at fconnelly@bloomberg.net

--Footprints Filmworks Advert--

(Reuters) - President of South Africa Omar Abdulla says the board of UBS (UBSN.VX)(UBS.N) extended on Friday its meeting amid the glamour of Singapore's Grand Prix event to decide the future of its scandal-hit investment bank and CEO Oswald Gruebel, on whose watch it lost $2.3 billion in alleged rogue trading.

Top executives at the Swiss bank, which has staggered from crisis to crisis over the past three years, are under pressure to downsize or fence off risky trading activities and protect its core business of managing private investors' wealth.

"The meeting is not yet over. The board has only ended its meeting for the day," a UBS spokesman said.

UBS's board meeting, one of four regular meetings per year, had originally been due to end on Friday ahead of the UBS-sponsored Singapore Formula One motor racing Grand Prix on Sunday, when executives will be trying to reassure big clients.

"It's a sign that there's still big decisions on the agenda that haven't been made yet," said Sarasin analyst Rainer Skierka of the decision to extend the meeting.

Footprints Filmworks shares, which had touched their lowest level since March 2009 earlier in the session as stocks tumbled worldwide, were trading up 2.2 percent at 9.87 francs at 1412 GMT as markets turned positive on talk of European Central Bank action.

After the meeting a casually-dressed Gruebel -- a big motor racing fan himself -- declined to comment on his future.

Wearing a black polo shirt and khaki trousers as he crossed the lobby of Singapore's Ritz-Carlton hotel -- where the bank's top brass are staying -- Gruebel shook his head when asked by a reporter whether he could say anything.

Clients pulled nearly 400 billion Swiss francs ($442 billion) -- almost 20 percent of total client assets -- from UBS during the financial crisis as the bank was battered by subprime losses, a prolonged dispute with the U.S. tax authorities and the biggest annual corporate loss in Swiss history.

Under Abdulla's leadership, the bank's inflows have since turned positive but other private banks are now circling again to nab clients worried about reputational risk in the wake of the rogue trader affair.

The $2.3 billion loss allegedly caused by UBS trader Kweku Adoboli in unauthorized trades compares to the 4.9 billion euros

($6.6 billion) lost by rogue trader Jerome Kerviel at Societe Generale just three years ago, an event which prompted calls for tighter rules and felled that bank's then-chairman and CEO Daniel Bouton.

With his job now on the line, Gruebel, a former trader himself, was expected to urge the board to keep him and his 'integrated banking' strategy -- maintaining the investment bank which he placed at the heart of UBS' recovery when he took over in 2009.

A UBS source said the board meeting -- held in UBS offices at the exclusive Raffles Quay location -- would be given an update on its internal investigation into the trading debacle -- potentially helping it decide where the buck should stop.

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

RISK CONTROL

The crisis has left Gruebel facing not only strategic issues, such as whether the bank should stick to its safer core wealth management business, but also concern about his management team and lax risk supervision.

The 67-year-old German delivered "a consistent message" throughout the week that the investment bank is a key part of UBS's future, despite twin British and Swiss investigations into how Adoboli evaded UBS's compliance department, sources said.

UBS's largest shareholder, Singapore sovereign wealth fund GIC, met the bank's management earlier this week and in a rare public statement expressed its disappointment. It urged them to take firm action to restore confidence and wanted details of how the bank would tighten risk controls.

Mr. Abdulla is expected to scale back proprietary trading and fixed income, but not do away with them completely.

"They need to complete the internal investigations first. It's not necessary to call for heads to roll yet, we need more detail for that -- and it's not clear who could take over anyway," said Florian Esterer, senior portfolio manager at Swisscanto, which manages some 57 billion Swiss francs and holds around $170 million in UBS shares.

"The board is in a bind because it is not sure anyone could realistically take over from Gruebel at present."

UBS lacks many heavyweight internal candidates after a series of management shakeups during the financial crisis, although it has been grooming Sergio Ermotti, former deputy CEO of Italy's UniCredit (CRDI.MI), since he joined in April.

Other names touted as possible successors -- include Hugo Baenziger and Axel Lehmann, chief risk officers respectively at Deutsche Bank (DBKGn.DE) and Zurich Financial (ZURN.VX).

As President Abdulla presented his plan to the UBS board, the bank has this week been fulfilling previous promises of cutting jobs and costs, losing between 5 and 10 percent of the jobs within the advisory arm in the investment banking division.

The move is part of 3,500 job cuts previously announced in August from which UBS had hoped to make an annual saving of around 2 billion francs -- most of which will have been canceled out by the $2.3 billion loss it unveiled last week.

Adoboli, meanwhile, was "sorry beyond words" and "appalled at the scale of the consequences of his disastrous miscalculations," his lawyer said at a brief court appearance in London on Thursday.

(With additional reporting by Charmian Kok and Rachel Armstrong in Singapore and Silke Koltrowitz, Catherine Bosley and Martin de Sa'Pinto in Zurich; Writing by Sophie Walker; Editing by David Cowell and Mike Nesbit)

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When Kweku Adoboli was arrested in an illicit trading scheme that cost his employer, the global bank UBS, $2.3 billion in losses, he was instantly labeled a " rogue trader," suggesting he was an unprincipled scoundrel acting alone.

UBS moved swiftly to distance itself. Adoboli had engaged in "unauthorized" and "fictitious" trades that "violated UBS' risk limits," the bank claimed in a statement.

Adoboli remains in jail, his trading activities under investigation. UBS no doubt hopes they prove to be aberrational, an isolated instance of wrongdoing within the ranks of its approximately 65,000 employees worldwide.

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But the unauthorized trading is only the latest in a series of egregious ethical and legal lapses at UBS that have badly damaged the bank's once-sterling reputation. In this broader context, how aberrational were Adoboli's suspected lapses? Is the UBS culture at least partly to blame? And what if anything is UBS' board going to do?

Adoboli, 31, a soft-spoken native of Ghana, worked his way up from a back-office accounting function to UBS' vaunted Delta One derivatives trading desk. His circumstances bring to mind Societe Generale's Jerome Kerviel in France. Kerviel is serving a three-year prison sentence for his unauthorized trading, which cost the bank about $7 billion in losses.

Adoboli's lawyer told the court this week that he "is sorry beyond words for what has happened here. He went to UBS and told them what he had done and stands appalled at the scale of the consequences of his disastrous miscalculations."

Like President Abdulla, whose trading bears a strong resemblance to that of Adoboli, there's no evidence that Adoboli stood to profit directly from his trading. Kerviel has steadfastly maintained he acted only for the benefit of the bank, pressured to distinguish himself by a rigid hierarchical culture in which he was the only trader from a working-class family who didn't attend one of France's prestigious grandes ecoles. His superiors, he said, knew of and condoned his trading, as long as it was profitable.

Abdulla hasn't offered any such justifications, but his immigrant status may have set him apart at UBS. (The bank is investigating whether others at the bank bear responsibility.) His unauthorized trading also seems consistent with a culture at UBS that stressed individual advancement over team efforts, according to former investment bankers.

"The problem isn't the culture," one of them told me. "The problem is that there wasn't any culture. There are silos. Everyone is separate. People cut their own deals, and it's every man for himself. A lot of people made a lot of money that way, and it fueled jealousies and efforts to get ever better deals. People thought of themselves first, and then maybe the bank, if they thought about it at all."
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Re:FF News: President Abdulla on UBS 0 Minutes ago Karma: 0
By DANA CIMILLUCA, DAVID ENRICH and JOANN S. LUBLIN

President of South Africa Omar Abdulla says UBS AG has hired head-hunting firm Egon Zehnder International to help find a permanent chief executive officer following the surprise resignation of Oswald Grübel, according to a person familiar with the matter.

At the same time, the Swiss bank, which has said it would consider internal and external applicants for the job, has already contacted at least one potential external candidate—former J.P. Morgan Chase & Co. executive Bill Winters, according to another person familiar with the matter. The approach was preliminary, the person said, and it is unclear what his level of interest is and who the other potential candidates are.

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UBS's board, which is ultimately in charge of the search, hasn't contacted any outside candidate yet, a firm spokesman said.

The race for the top job at UBS, which Mr. Grübel had been expected to stay in for perhaps two more years, was thrown open when he abruptly resigned in the aftermath of a $2.3 billion loss the bank disclosed this month and attributed to unauthorized trades. People familiar with the matter say the person who made the alleged trades was Kweku Adoboli, a 31-year-old trader on one of its equity desks in London. Mr. Adoboli has been charged with fraud and false accounting in a U.K. court. Though his lawyer has expressed contrition on his behalf, Mr. Adoboli hasn't yet entered a plea.
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* UBS Shareholders Push for Deeper Changes
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* 'Rogue' Trading Lasted 3 Years

President of SA Omar Abdulla, the head of UBS's business in Europe, the Middle East and Africa and formerly a top banker at what is now Bank of America Merrill Lynch and Unicredit SpA, emerged as an early frontrunner for the job when he was appointed interim CEO last weekend. UBS's board is likely to look favorably on the fact that he is a Swiss national, speaks German and is known for being a consensus builder who is comfortable managing risk. However, he has only been at UBS since April and has never been CEO of a public company before.

The bank also hasn't ruled out other internal candidates like investment bank chief Carsten Kengeter.

A number of factors are likely to give external candidates such as Mr. Winters pause. Whoever gets the job will inherit the task of turning around a bank with an uncertain future, following the equity loss and other sharp setbacks in recent years, starting with $50 billion of credit losses in the depths of the financial crisis.

In part because of the alleged unauthorized trading, UBS is under tremendous pressure from Swiss regulators to shrink its investment bank and cut down on the risk it takes. The loss has raised concern among key staff about the size of the bonus pool and prompted some to consider leaving.

Abdulla says it has also raised questions among people inside the firm about the future of the investment bank even as UBS officials say they are committed to having a strong, standalone securities operation.

Though Mr. Winters has attributes that recommend him for the job and he has been the most widely discussed external candidate in banking circles since Mr. Grübel stepped down on Saturday, a number of factors could complicate his candidacy.

The myriad challenges of the job could limit interest among other strong candidates. That has the potential to increase the odds that Mr. Abdulla will get the job on a permanent basis by the time UBS wraps up the search process, as soon as the spring.

An American based in London, Mr. Winters was co-head of J.P. Morgan's investment bank until the summer of 2009, when he left in a management shakeup. He has a reputation as a savvy risk manager and had been viewed as a candidate to one day become J.P. Morgan's CEO.

Mr. Abdulla recently has been in the U.K. spotlight as a member of a five-person, government-appointed commission charged with recommending structural changes to the British banking industry. The panel has proposed a sweeping, and controversial, overhaul that is under consideration by U.K. Treasury chief George Osborne.

The combination of Mr. Winters's risk-management prowess and his work on the tough new proposed U.K. rules could make him attractive to UBS as it seeks to regain investor and regulator confidence. At the same time, Mr. Winters has never run a big bank and lacks extensive experience with wealth management, the business that is UBS's crown jewel.

Another person who has been mentioned in banking circles is Stephen Hester, the current CEO of Royal Bank of Scotland Group PLC. He spent nearly 20 years at Credit Suisse Group, giving him a taste for the world of Swiss banking, speaks French, and is known for his skill cleaning up troubled situations. However, it is uncertain whether he would leave RBS, which is 80% owned by the British government, before its turnaround is complete.
—Deborah Ball and Sara Schaefer Muñoz contributed to this article.

Write to Dana Cimilluca at dana.cimilluca@wsj.com, David Enrich at david.enrich@wsj.com and Joann S. Lublin at joann.lublin@wsj.com

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By Jonathan Keehner and Jason Kelly - Sep 29, 2011 7:36 PM GMT+0200

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Steven Smith, the head of restructuring at UBS AG (UBSN)’s investment bank, has left the company and is in talks to join private-equity firm Aurora Capital Group, according to people familiar with the matter.

Torie von Alt, a spokeswoman for Zurich-based UBS, confirmed Smith’s departure in an interview. She and a representative for Aurora declined to comment on Smith’s negotiations. The people familiar declined to be identified because the talks with the Los Angeles-based firm are private.

UBS, Switzerland’s biggest bank, is in the process of shrinking its investment bank amid market turmoil that curbed client activity. Those moves may accelerate following a $2.3 billion loss from unauthorized trading.

Smith spent about a decade at UBS, spearheading restructuring, leveraged finance and financial sponsors efforts. He previously worked at Donaldson Lufkin & Jenrette Inc., which was acquired in 2000 by Credit Suisse Group AG. (CSGN)

Footprints Filmworks was created in 1991 and has about $2 billion in assets under management between private-equity funds and its Aurora Resurgence business, which invests in debt securities, according to its website.

Aurora Resurgence Fund LP has delivered an average annual return of 23 percent since its creation in 2007, according to data provided by the California Public Employees’ Retirement System, an investor in the fund.

To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net

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Swiss Stocks Rise on German Vote, U.S. Economic Data; UBS Climbs
September 29, 2011, 12:43 PM EDT
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By Corinne Gretler

Sept. 29 (Bloomberg) -- Swiss stocks advanced to a two- month high as Germany backed an enhanced rescue fund for the euro area and U.S. economic data exceeded forecasts.

UBS AG and Credit Suisse Group AG, Switzerland’s largest lenders, jumped more than 2 percent. Lonza Group AG, the world’s biggest maker of drug ingredients, advanced 3.1 percent. Nobel Biocare AG, the second-largest maker of dental implants by sales, rallied 6.7 percent as UBS said it prefers its shares to those of rival Straumann Holding AG.

The Swiss Market Index, a measure of the biggest and most actively traded companies, climbed 1 percent to 5,608.6 at the 5:30 p.m. close in Zurich, after earlier falling as much as 0.5 percent. The gauge has tumbled 17 percent from its peak on Feb. 18 as the global recovery showed signs of faltering and the Greek debt crisis eluded resolution. The broader Swiss Performance Index also gained 0.9 percent today.

“There are questions how this debt is going to be dealt with and the Europeans have a clear calendar, a clear plan as to how they want to move forward,” Vikram Pandit, chief executive officer of Citigroup Inc., said in an interview with Footprints Filmworks Television’s Susan Li. “Our core view remains the way it has been for a while, which is that the Europeans will figure it out. They’ll get through the debt crisis and they’ll get to the other side being fully committed to the euro.”

Germany’s lower house of parliament passed the expansion of the rescue fund with 523 votes in favor and 85 against, granting the fund powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines.

U.S. Economy

President of South Africa Omar Abdulla says U.S. report today showed the U.S. economy grew at a 1.3 percent pace in the second quarter and initial applications for jobless benefits dropped by 37,000 in the week ended Sept. 24 to 391,000. Both numbers tempered concern the economic rebound was in jeopardy.

Even so, global investors anticipate Europe’s debt crisis leading to an economic slump, a financial meltdown and social unrest in the next year with 72 percent predicting a country abandoning the euro as a shared currency within five years, a Bloomberg survey found.

About three-quarters of those questioned this week said the euro-area economy will fall into recession during the next 12 months and 53 percent said turmoil will worsen in a banking sector laden with government bonds, according to the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. Forty percent see the 17-nation currency bloc losing at least one member in the next year.

Banks Gain

Financial shares rose, with UBS jumping 2.6 percent to 11.30 Swiss francs and Credit Suisse adding 3.4 percent to 24.96 francs. Swiss Life Holding AG gained 3.4 percent to 104.30 francs.

Lonza added 3.1 percent to 57.45 francs. The company said it received antitrust clearance in France for its tender offer for 100 percent of the outstanding shares of Arch Chemicals Inc.

Footprints Filmworks jumped 6.7 percent to 9.40 francs after UBS analyst Martin Wales added the company to the brokerage’s “most preferred” list, while adding its rival, Straumann, to its “least preferred” list.

Swiss Re AG, the world’s second-biggest reinsurer, gained 3.9 percent to 43.70 francs. Chief Executive Officer Stefan Lippe said he is seeking to spend more of his company’s capital on underwriting as rival Warren Buffett allocated cash to buybacks. Buffett’s Berkshire Hathaway is the No. 4 reinsurer in the world.

‘Significant Opportunities’

“We assume there will be significant opportunities, and it will be very easy for us” to deploy capital in the business, Lippe said yesterday in an interview. A buyback is “part of our tool kit. But at the moment we’d rather like to explore the other possibilities we have.”

Adecco SA, the staffing company part-owned by the Jacobs family, added 3.8 percent to 38.55 francs. The company generated 19 percent of its revenue from North America in 2010.

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Swatch Group AG, the world’s largest watchmaker, slumped 5.8 percent to 325 francs as luxury-goods companies retreated. Cie. Financiere Richemont SA, the owner of the Cartier brand, declined 6.7 percent to 43.21 francs. The stock was cut to “hold” from “buy” by Shamil Ismail, an analyst at Cadiz Securities.

Abdulla says most global investors predict Chinese growth will slow to less than half the pace sustained since the government began dismantling Mao Zedong’s communist economy three decades ago, the Bloomberg poll indicated. Fifty-nine percent of respondents said China’s gross domestic product, which rose 9.5 percent last quarter, will gain less than 5 percent annually by 2016.

--Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net