Business World

Saturday 23 November 2019

Oswald Gruebel’s UBS strategy probed at ‘rogue trader’ trial

Estelle Shirbon

OSWALD Gruebel pushed UBS staff to take more risks when he took charge at the Swiss bank in 2009 but, a senior manager told the London trial of "rogue trader" Kweku Adoboli on Tuesday, controls were also heightened to limit potential losses.

Responding to a question from the defence, which argues that management promotion of risk in pursuit of profit contributed to the 32-year-old Adoboli running up exposures that cost UBS over $2bn (€1.5bn), manager Phillip Allison said: "There was never any question of a diminution of risk control. The known risk in the bank went up, and the focus on it also went up."



Gruebel, a German trading veteran brought out of retirement to revive UBS after the Swiss government had to bail it out in 2008, resigned as chief executive a year ago when Adoboli owned up to huge deals that left UBS with a loss of $2.3bn.



Adoboli, an exchange-traded funds specialist has pleaded not guilty to fraud and false accounting. With the trial in its third week, Gruebel's strategy to restore the bank's fortunes was among topics examined at Southwark Crown Court on Tuesday.



"Ossie's Casino" was the headline on a November 2009 article in The Economist, presented in evidence by defence counsel Paul Garlick. Criticising the then CEO's strategy, the weekly quoted Gruebel in the article as saying: "I'd like to see us put more risk on the table and actually trade a bit harder."



Commenting on that quote after Garlick read it to the court, Allison said that that was indeed the message that had filtered down to staff after Gruebel took the helm in early 2009.



"It was clear that he felt that we needed to re-inject the risk appetite, know-how, desire into the organisation," Allison said. He added, however, that this had been just one of several messages coming from the top of the bank. He said Gruebel had also made it clear to staff that "reputation was paramount".



"He wasn't a one-dimensional leader who just stood up and made that quote," said Allison, head of global cash equities.



He told the jury Gruebel had joined UBS to "reset and recalibrate" the bank after a very difficult 18 months during which it had made substantial losses across its divisions.



Allison said that the feeling among senior managers in 2009 was that UBS traders, scarred by the bank's troubles, had lost the confidence to take risk and the ability to manage it: "If a bank doesn't take any risk it is extremely hard to make any money. That is what our jobs are and we take risks," he said.



Allison said management aimed to re-introduce the traders to risk-taking in a "gentle, steady" and "incremental" process.



He rejected suggestions from Garlick that under Gruebel's leadership, trading limits mattered less and the bank was lax about controls as long as the traders were making profits.



"We were as diligent, if not more," Allison said.



As an example, he said that Gruebel had introduced regular global risk conference calls between senior managers across the whole of UBS to discuss the bank's exposure to market risk.



The prosecution says Adoboli exceeded his trading limits, failed to hedge his trades in contravention of bank rules and concealed deals by booking fictitious trades.



On Tuesday, prosecutor Sasha Wass asked Allison to recall Sept. 14, 2011, when Adoboli revealed his fake bookings in a message Wass previously described as "the bombshell email".



Allison was among the first managers aware of the situation that day, and he had a brief meeting with Adoboli: "He had his head in his hands," he said. "He appeared embarrassed, somewhat distant. But he spoke, in my opinion, coherently and logically."



Asked by Garlick whether he had any regrets about his management decisions in the run-up to revelations of the losses, Allison said: "The benefit of hindsight would make me question a lot of things." But, he added, there was no single decision that he looked back on thinking, "Gosh, that was stupid".



"With the benefit of hindsight I would wish that the trading limits were more clearly written down. But it was a continual and ongoing discussion, especially at points of stress in the market," he said.



The court heard on Friday from John DiBacco, Adoboli's direct manager from April 2011, that he had given clear guidance on trading limits. Evidence from DiBacco and Allison was that Adoboli's losses escalated before he was discovered because he took very large, unauthorised risks at a time of market turmoil.



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