UBS AG has accepted the resignations of global equities co-heads Francois Gouws and Yassine Bouhara and named Mike Stewart as the sole global head of equities following an unauthorized trading scandal that came to light last month.
The resignations mark the latest exit from the Zurich-based firm, which also saw CEO Oswald Gruebel step down less than three weeks ago.
UBS Investment Bank Chief Executive Carsten Kengeter accepted Gouws’ and Bouhara’s resignation on Wednesday.
The executives’ departures come just one day after UBS said it still expects to report a “modest” net profit for the third quarter, revising a Sept. 15 statement warning that it could absorb a loss in the quarter following the discovery of the unauthorized trading and the $2.3 billion loss associated with it.
UBS is continuing with an independent investigation into the rogue trading incident, which resulted in the arrest of former UBS equities trader Kweku Adoboli, who has been charged with fraud and false accounting in London.
UBS declined Wednesday to provide further details about the ongoing investigation, but did say that more employees could be held accountable for the incident.
“In addition, appropriate disciplinary action will be taken against other individuals in the equities business as a result of the incident,” the firm said in its statement. “UBS also expects to take disciplinary action against responsible staff in other functions.”
Stewart’s appointment is a promotion after he joined the firm in late July from Bank of America Merrill Lynch, where he led the global equities division.
UBS has repeatedly moved to reassure its U.S.-based wealth management force, particularly its financial advisors, that that business is secure following the scandal.
Last week, UBS Chairman Kaspar Villiger and interim CEO Sergio Ermotti sent a memo to the U.S. wealth management business stating that that unit is not for sale.
Rochdale Securities Bank Analyst Dick Bove said Wednesday that UBS still has a few years to go to clean up its current mess, which dates back to the financial crisis in 2008.
The departure of the equities executives reflects ongoing issues for UBS’s capital markets business, which should see significant downsizing and restructuring, Bove said. “That business has not covered itself in glory for five years,” he said. “If the business is not covering itself in glory, it’s the people working in the business who are causing the problem.”
Meanwhile, the U.S. wealth management business, which has been the subject of continuous sale rumors, will probably not be sold, Bove predicted. “The brokerage business is not booming in the United States or anywhere around the world, so it’s questionable how much you would get for it,” he said. “Why would you want to sell it if it doesn’t require that much capital and it is a conduit for raising funds to increase your liquidity? It doesn’t seem to make sense to me,” he added.
Despite this scandal, UBS is expecting a profit for the third quarter. However, that profit most likely will come from a debt valuation adjustment, which could be bigger than the write-off from the rogue-trading incident, allowing the firm to show a profit, Bove said. A debt valuation adjustment happens when the value of an organization’s debt goes down, and allows it to take a sizeable profit as a result.
Financial services recruiter Mindy Diamond, president of Chester, N.J.-based Diamond Consultants, said that today's latest news emerging from the scandal probably won't affect financial advisors at the firm at all.
However, Diamond added: There’s no way to put a positive spin on that $2.3 billion loss.” Advisors who did field calls from a few nervous clients, told Diamond that their “clients are also somewhat numb and were assuaged by a few words of assurance and they moved on.”
In fact, Diamond has not seen a dramatic uptick in UBS advisors looking to leave the firm because of the scandal. But as UBS looks to lure new advisor talent, it may have to wait out the events, as those financial professionals are “definitely not” looking at UBS as an option, she said. "Time will tell if they get their footing back, what sort of impact it will have on their recruiting efforts in general.”