UBS said in early October that the co-heads of its global-equities unit resigned in response to the unauthorized trading that caused a $2.3 billion loss at the bank in mid-September. A former Bank of America-Merrill Lynch executive is now the sole leader of the unit. These shifts come on the heels of former UBS CEO Oswald Gruebel’s resignation in late September; Gruebel was replaced by interim CEO Sergio Ermotti, a former Merrill executive, prompting many recruiters to predict that the U.S. wealth-management operations of UBS could likely see some departures and weak recruiting.
“Carsten Kengeter, CEO UBS Investment Bank, has … accepted the resignations of Francois Gouws and Yassine Bouhara, co-heads of global equities, following the recently announced unauthorized trading incident,” UBS said in a press release. “Their resignations come as they assume overall responsibility for the effective management of the equities business.”
UBS also says that “appropriate disciplinary action” is being taken against other individuals in the equities business as a result of the revelation about the unauthorized trades and the mid-September arrest of UBS trader Kweku Adoboli in London. “UBS also expects to take disciplinary action against responsible staff in other functions,” the company explained in a statement.
Mike Stewart, who recently joined UBS from BofA-Merrill Lynch where he headed its global-equities division, is now the global head of equities operations at UBS. “He brings with him extensive market and leadership experience that is needed to ensure the sound management of the business and seamless execution of the firm’s global-equities strategy,” the Swiss bank said in a statement.
UBS also said in early October that, despite the trading losses and a $433 million restructuring charge tied to cost cutting, it should report a modest net profit for the third quarter of 2011. In addition, UBS expects to report net new money inflows in its wealth-management businesses “at levels broadly similar to those of the previous quarter,” it said. Global asset management, however, should report moderate net new money outflows.
UBS includes 11,065 advisors worldwide, about half of whom are in the United States. The bank said recently that it plans to continue with further cost cutting and job reductions through 2012. However, “UBS will continue to invest in growth regions, including Asia Pacific, the Americas, and the emerging markets, as well as in our global wealth-management franchise,” it said in a statement.
In the second quarter of 2011, UBS’ non-U.S. wealth management operations attracted $6.1 billion in net new assets. By region, the net inflows were roughly $3.4 billion in Asia, $3 billion in the emerging markets (including Latin America) and $1.6 billion in Switzerland. Outflows of $2 billion took place in Europe. And the group reported that $4.4 billion of net inflows worldwide came from ultra-high-net-worth clients.
In the United States, net new money inflows were $6.7 billion, including dividends and interest. Excluding these items, the inflows in the second quarter were $2.8 billion. (This unit is led by former-Merrill Lynch executive Bob McCann.)
“UBS’s capital position remains strong, and its capital base at the end of the third quarter of 2011 is expected to remain broadly in line with the balance at the end of the previous quarter, including the loss associated with the unauthorized trading incident,” the company said. “The BIS Basel II tier 1 capital ratio is expected to decline slightly compared with the second quarter due to the impact on risk-weighted assets of the unauthorized trading incident.”
As uncertainty continues over how UBS’ new interim CEO will steer the company, UBS financial advisors in the United States are facing calls from upset clients and eager recruiters. Still, the likelihood that the U.S. wealth operations will be spun off, though it does exist, is somewhat remote, experts and recruiters say.
Interim CEO Ermotti is likely to do all he can to keep the advisors calm and may even introduce some cost-cutting measures, says Ron Edde, a recruiter with Armstrong Financial Group. “Or there is the nuclear option of spinning off and selling the wealth-management operations” in the Americas, he said in an interview, “but the leadership of UBS will do all they can to prevent it.”
He and other industry insiders, however, are mulling that if there is an exodus of clients or advisors: “This option will be back on the table,” said Edde, who adds that it has been a rumored strategy for some time.