UBS raises rogue equity trade losses to $2.3 billion (Reuters)

ZURICH (Reuters) – Swiss bank UBS increased the amount it said it had lost on rogue equity trades to $2.3 billion on Sunday and Chief Executive Oswald Gruebel said the alleged fraud would have consequences for strategy and possibly also for himself.

"It is obvious that these incidents will have an influence on the strategy of the investment bank," a visibly chastened Gruebel told Swiss television, adding that the firm would present a new strategy for its investment bank soon.

"I will bear all the consequences of the incident. They will be announced as soon as we put them in practice," he said.

UBS stunned markets on Thursday when it announced unauthorised trades had lost it some $2 billion. London trader Kweku Adoboli was charged on Friday with fraud and false accounting dating back to 2008.

UBS said in a statement on Sunday the trader concealed "unauthorised speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months" by creating fictitious hedging positions in internal systems.

"The loss arising from this matter is $2.3 billion. As previously stated, no client positions were affected," it said.

Global stock markets have been extremely volatile in recent months, plunging on concerns over euro zone and U.S. debt crises and then rebounding on hopes for their resolution.

BUCK STOPS WITH GRUEBEL?

The loss is a disaster for the reputation of Switzerland's biggest bank, which had just started to recover after it almost collapsed during the financial crisis and faced a damaging U.S. investigation into aiding wealthy Americans to dodge taxes.

"Loss even more. Reads like they're making excuses," Helvea analyst Peter Thorne said of the UBS statement in an e-mail.

The new scandal has prompted calls for UBS's top managers to step down and for its investment bank to be split into a separate unit from its core wealth management business.

Chris Wheeler, bank analyst at Mediobanca, said there would be pressure on UBS to address the investment bank fast.

"That had been planned anyway for the investor day on November 17 and there may be pressure on them to accelerate that."

Gruebel, who was brought out of retirement in 2009 to turn the bank around, was quoted in a newspaper on Sunday as saying he was not considering quitting over the crisis, but said it was up to the board to decide.

In a memo to staff on Sunday, he said: "Ultimately, the buck stops with me. I and the rest of senior management are responsible for dealing with wrongdoing."

Swiss newspapers quoted unnamed insiders as saying the UBS board and important shareholders such as the Singapore sovereign wealth fund still backed Gruebel, with immediate changes the last thing the bank needs and an obvious successor lacking.

CONFIDENCE, SECURITY, DISCRETION?

The bank, whose three keys logo symbolise "confidence, security, discretion," has for now pulled its "We will not rest" global advertising campaign that was designed by advertising agency Publicis to try to rebuild its image.

Meanwhile, UBS client advisers have been writing to customers to reassure them of the underlying financial strength of the bank despite the trading loss, a spokesman said.

"That we now suffer this setback at this point in our efforts to improve our reputation is very disappointing. This incident also sets us back somewhat in our capital-building efforts," Gruebel said in his memo to staff.

"However, I wish to remind you that our fundamental strengths as a firm remain intact... we remain one of the best-capitalised banks in the industry.

UBS said its board of directors had set up a committee chaired by independent director David Sidwell, former chief financial officer at Morgan Stanley, to conduct an independent investigation into the trades and the bank's control systems.

A source close to the bank said the trades involved positions with a notional value of about $10 billion.

The bank said it had covered the risk resulting from the unauthorised trades, and its equities business was again operating normally within previously defined risk limits.

It said the trader had allegedly concealed the fact his trades violated UBS risk limits by executing fake exchange-traded fund (ETFs) positions.

"Following inquiries directed to him by UBS control functions that were reviewing his positions, the trader revealed his unauthorised activity," the bank said.

ETFs are index funds listed on an exchange and can be traded just like regular stocks. They try to replicate index performances and offer lower costs than actively managed funds, but regulators have warned about risks from some complex ETFs.

The instruments involved in the UBS case are similar to those that Jerome Kerviel, the rogue trader at Societe Generale, traded when he racked up a $6.7 billion loss in unauthorised deals in 2008.

Christoph Blocher, vice-president of the right-wing Swiss People's Party (SVP) -- the country's biggest -- renewed his calls for a splitting off of the investment bank.

"One has to seriously examine a ban on investment banking for commercial banks," he told the SonntagsZeitung newspaper, adding his party might team up with the center-left Social Democrats to push for such a move.

(Reporting by Emma Thomasson and Silke Koltrowitz; Additional reporting by Steve Slater in London; Editing by David Hulmes and Peter Graff)

View the original article here

Goldman to close Global Alpha fund after losses (Reuters)

By Lauren Tara LaCapra and Svea Herbst-Bayliss Lauren Tara Lacapra And Svea Herbst-bayliss – Fri?Sep?16, 8:17?am?ET

NEW YORK (Reuters) – Goldman Sachs Group Inc is shuttering a well-known hedge fund that relies on computer-driven trading strategies after the portfolio rang up a hefty loss this year.

Goldman told investors in the roughly $1.6 billion Global Alpha fund the news on Thursday, one day after it announced a management shake-up at the fund that had been the crown jewel of its quantitative trading business. The fund will be closed in the next few weeks.

Global Alpha had tumbled 13 percent by early September, delivering a far worse performance than other hedge funds that rely on computer programs to quickly take advantage of opportunities in the market, people familiar with the number said. These types of funds are supposed to move quickly in and out of stocks, bonds, currencies and other assets and exit positions before losses accrue.

This is the second time in four years the Global Alpha fund -- once one of Goldman's biggest with $12 billion in assets -- has suffered big losses and its performance raises questions about the ability of Goldman Sachs to manage quantitative strategies for its wealthy clients.

In fact, people familiar with Goldman Sachs have said the company's decision to liquidate Global Alpha signals its decision to exit quantitative hedge fund strategies altogether. The firm still manages billions in quantitative mutual funds.

Goldman Sachs declined to comment.

Even though Goldman's Global Alpha fund is in the red, most other quantitative hedge funds are up or are flat for the year. The average quant fund is down less than 1 percent over that period, according to performance tracking service Hedge Fund Research Inc.

Mark Carhart, the man who managed the Global Alpha fund with Raymond Iwanowski for more than a decade until 2009, has gained 7 percent net of fees this year at his new hedge fund Kepos Capital, a person familiar with his numbers said.

The new turmoil at Global Alpha comes almost four years to the day after the fund lost 22.5 percent in August 2007, during the early days of the financial crisis. Those losses prompted investors to pull money out.

Even though the fund's performance steadied with a 4 percent gain in 2008 and raced ahead with a 30 percent increase in 2009, assets never recovered. By the time Carhart and Iwanowski left in 2009, the fund had shrunk to $4 billion from its $12 billion peak. Soon after the pair retired, assets shriveled further to about $2 billion. The fund neither gained nor lost money last year, delivering a zero return.

The quantitative group has been beset by departures for some time. More than two dozen left this year alone, people familiar with the numbers said.

On Wednesday, Goldman Sachs Asset Management sent a letter to Global Alpha investors notifying them that Katinka Domotorffy, the head of the group's quantitative investment strategies, would retire at year's end. The letter, a copy of which was obtained by Reuters, did not discuss the poor performance of the Global Alpha fund.

DEJA VU AGAIN

What may have hit the Goldman fund especially hard were the unexpected stock market sell offs in early August and recent currency market fluctuations in the wake of the Swiss National Bank's decision to halt the rise of the Swiss franc, people familiar with the fund's models said.

Andrew Schneider, president and CEO of Global Hedge Fund Advisors, said the first half of September has been brutal for some large hedge funds, due to unpredictable moves in market direction.

"The volatility has been so high; if you're wrong, especially if you're using margin or leverage, your returns are going to be extremely poor," said Schneider.

Other quantitative hedge funds, however, fared better. James Simons' Renaissance Technologies' Renaissance Institutional Equities fund has gained more than 25 percent this year, said a person familiar with the fund run by the math professor turned hedge fund manager. Another quant fund, QuantZ Capital Management, for instance, is up 12.8 percent through September 6, according to a letter sent to investors.

(Reporting by Svea Herbst-Bayliss, Lauren Tara LaCapra and Katya Wachtel in New York; editing by Matthew Goldstein, Matthew Lewis and Andre Grenon)

View the original article here