Of Special Interest


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27th September 2011

Sergio Ermotti appointed interim UBS CEO

The UBS board accepted the resignation of Oswald Grübel as Group CEO on Saturday, understood to be less than 24 hours after a fateful vote of confidence. The board appointed Sergio Ermotti as interim Group CEO. The official announcement stated, "The Board regrets Oswald Grübel's decision. Oswald Grübel feels that it is his duty to assume responsibility for the recent unauthorized trading incident".

Ermotti was with the UniCredit group for many years. He held various positions at Bank Austria before moving to HypoVereinsbank as Chairman of the supervisory board, deputy CEO of UniCredit and group head of Corporate and Investment Banking. He left to join UBS after failing to get the top job following the dismissal of Profumo. Since joining UBS last December he has been Chairman and CEO of Europe, the Middle East and Africa. He has been tipped since joining for the CEO role.

Some media report that the parting with Grübel was because of his demand that UBS remain a universal bank with a strong investment banking division remaining whilst the board now want a significant and rapid reduction. Chairman Kaspar Villiger insisted the board was committed to the retention of a strong investment banking activity though qualifying this by adding, "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."

Discussed less is the fact that shortly after the rogue trading event was discovered Grübel said that 'the buck stops here' in terms of responsibility. When a statement like that is made it is hard to see any other eventual outcome than resignation. The Singapore sovereign wealth fund, GIC, is the largest shareholder in UBS and issued a statement following discussion with UBS top management expressing disappointment at the failures and urging UBS to take firm action. The move is uncharacteristic of GIC for an organisation that normally stays in the shadows and rarely intervenes.

The Swiss authorities could close the investment banking down. Another, and perhaps more likely option would be to introduce ring-fencing.

It is argued that no system can guarantee that a trusted and motivated individual can never commit fraud. Although true, banks have strongly resisted measures in the US and Europe that if in place may have prevented the Société Générale and this most recent UBS fraud. Part of the Dodd-Frank act and European plans relates to control and the automatic filing in real time or near real time of Over The Counter security trades such as Exchange Traded Funds, including hedges made at the same time. Currently confirmations occur significantly after the event and are done by fax. This allows a trader to alter or invent offsetting hedges as happened in the recent rogue events.