Forex Fines

Once Again, UBS Promises Change

This one will blow over too, right? Source: imago/EQ images
This one will blow over too, right, Axel?
  • Why it matters

    Why it matters

    UBS chief Sergio Ermotti and bank president Axel Weber have promised to clean up the culture at Switzerland’s largest bank, but the scandals continue.

  • Facts

    Facts

    • UBS is Switzerland’s largest bank.
    • It has been fined a total of over €600 million for its part in rigging foreign exchange rates.
    • The bank’s internal controls first came under strutiny after it said in 2011 that it had lost over $2 billion through a rogue trader Kweku Adoboli.
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  • Audio

    Audio

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They had promised a change in culture, and an end to the series of scandals.

“No employee and no profit is worth jeopardizing the reputation of this bank,” said UBS chief Sergio Ermotti at a shareholders’ meeting in 2012. And his president, Axel Weber, never tires of emphasizing how important it is “to show zero tolerance for irregular conduct.”

But UBS is a long way away from being scandal-free. After an investigation of the Swiss Financial Market Supervisory Authority, FINMA, the British FCA, and the American CFTC on currency market manipulations, UBS has to again pay one of the highest total fines worth roughly €620 million ($772 million).

The FCA said that there were still supervision and control shortcomings at UBS up until October 2013. This was during the time when Mr. Weber and Mr. Ermotti ran the institution, which is Switzerland’s largest bank. UBS was also fined for attempted manipulation of the precious metal market.

“I would not be surprised to hear voices on the market emerging that question the credibility of the Weber-Ermotti management duo,” said Andreas Brun, an analyst at Zurich’s Cantonal Bank.

“The transgressions are serious and reach into the time when the management duo was responsible,” he said. “I still believe that Weber and Ermotti are determined to make it a top priority to eradicate the problems of the past.”

But still the scandals and the investigations continue. For the third time in less than two years, UBS has been forced to contend with misconduct of employees and gross control failures.

UBS now forbids its employees to send chat messages to workers in other banks, and private cell phones are not allowed in the trading rooms.

UBS has had a run of high profile scandals, caused by employees being allowed to carry out dubious deals unchecked.

In the fall of 2011, the London trader Kweku Adoboli overrode the internal controls at UBS and lost $2.3 billion. A good year later, UBS had to pay a fine of more than $1 billion because traders from the bank belonged to the core of the cartel that manipulated the benchmark interest rate Libor. And now 11 active and former employees of UBS are being suspected of manipulating currency rates or knowing about it.

“The bank did not draw enough conclusions from the past scandals,” the then-FINMA head Mark Branson complained, with unparalleled candor. One interesting detail is that Mr. Branson was formerly a UBS top manager himself.

According to the investigative reports, UBS did not take warnings from internal tipsters seriously. The British regulator FCA wrote that UBS received whistleblower reports about wrongdoings from currency traders between 2010 and the end of 2012. According to FINMA, even an internal review in July 2013 sounded the alarm and warned that “conflicts of interest of the Bank in currency trading is not sufficiently controlled and the detection of inappropriate trading practices was not sufficiently ensured.”

So is all this talk about a change in culture just puff? UBS insists things are different now. “The FINMA report does not emphasize that we have changed a lot,” James Oates, group head of internal audit at UBS told Handelsblatt.

He said that after the Libor case, UBS built up capacities to analyze email and chat messages. “Thanks to these abilities, after the early media reports in the summer of 2013 we were able to quickly determine currency trading misconduct and inform the authorities,” he said. At that time, the bank had not received a formal request from supervisory authorities. FINMA does praise the bank for its comprehensive reappraisal that made the work of the supervisory authorities “considerably” easier.

Mr. Oates points out that UBS now forbids its employees to send chat messages to workers in other banks, and private cell phones are not allowed in the trading rooms. In addition, the controls are tested. “For example, we put false orders in the system to see if the internal controls actually take effect,” he said.

The bank’s president Axel Weber said in 2012 that changing the culture at UBS is a marathon, not a sprint.  But he also said. “We are aware that we only have one attempt, also as a team.” The next scandal could maybe be one too many.

 

Holger Alich is Handelsblatt’s Switzerland correspondent. To contact the author: Alich@handelsblatt.com

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