Singapore fund hits at UBS ‘lapses’

The biggest shareholder in UBS broke its silence about the $2.3bn rogue trading scandal that has engulfed the Swiss group, criticising “lapses” in the bank’s controls ahead of a pivotal UBS board meeting in Singapore.

Government of Singapore Investment Corporation (GIC), Singapore’s sovereign wealth fund, was already sitting on a substantial loss on its 6.4 per cent stake in UBS before last week’s shock disclosure that a 31-year-old trader on the bank’s “Delta One” desk allegedly lost billions by taking unauthorised futures positions.

Oswald Grübel, UBS’s embattled chief executive, met GIC as the bank’s board gathered to review the implications of the scandal, and to consider sweeping changes to the bank’s business model in a long-scheduled meeting timed to coincide with the Singapore Grand Prix.

“[We] discussed the alleged fraudulent trading that led to the large financial loss for UBS,” GIC said in a rare statement. “GIC expressed disappointment and concern at the lapses and urged UBS to take firm action to restore confidence in the bank.”

Mr Grübel, the 67-year-old banking veteran brought out of retirement in 2009 to turn UBS around following its near-collapse during the crisis, is under intense pressure, particularly in Switzerland, where politicians and the public have seized upon the losses as proof that the industry requires much tighter controls.

Some UBS bankers said the odds of Mr Grübel staying on as chief executive appeared to be shortening as the scandal gathered pace in Switzerland, where voters are still angry about the government bail-out of the bank at the height of the crisis.

Others remained confident Mr Grübel would be able to ride out the storm. “Anyone who thinks that Ossie Grübel is going to bow to pressure over this clearly has never met Ossie Grübel,” said one top executive.

GIC, in its statement, stopped short of saying it would sell its shareholding in UBS, which it intended as a long-term investment. GIC is sitting on a substantial loss – close to $7.4bn – on its UBS stake, acquired for $15bn three and a half years ago.

Global banking and securities regulators said the case had prompted them to step up their scrutiny of exchange traded funds, the increasingly popular financial instrument allegedly used by UBS trader Kweku Adoboli to hide lossmaking trades.

Regulators are considering tough new rules to circumscribe the amount and quality of collateral ETF providers need and may also force the fund managers to disclose more about their counterparties and the techniques they use to match the indexes the funds are supposed to track.

The International Organisation of Securities Commissions is investigating the systemic risks posed by the funds, which track a wide variety of equity, bond and commodity indices.

“We should be more demanding in our regulation. We need transparency on replication methods and on collateral and on the possible existence of active management,” said Edouard Vieillefond, managing director of the Autorité des Marchés Financiers, France’s market regulator which has been concerned about ETFs for almost two years, told the Financial Times.