Financial advisors at the U.S. brokerage arm of UBS, which is reeling from a $2.3 billion trading scandal, have been told by their CEO Bob McCann that the “situation is frustrating and unacceptable.” In a strongly-worded memo this week to employees at UBS Wealth Management Americas (WMA), McCann assured them, however, that matters are under control.
“Your jobs are demanding as is. So I know how much more challenging it becomes when something like this happens. This situation is frustrating and unacceptable. And yet, you continue to handle it with dignity and grace,” McCann told employees Monday, seeking to calm nerves. “I am proud to be in business with all of you, and grateful for your loyalty, partnership and support of our company.”
McCann then laid the ground for a rough patch. “A lot is going to be said and written about UBS in the coming days,” McCann stated in the memo, a copy of which was exclusively obtained by Registered Rep. “Most of it, I suspect, will be less than complimentary. It’s unfortunate. All of you have worked so hard turning WMA around, making it a better place to be both an employee and a client. We cannot lose sight of that.”
McCann’s memo sought to boost morale. It noted how colleagues and clients are counting on each other for support. “We’ve come too far—with even more potential—to let this setback distract us from our goals and objectives,” he said. The setback, of course, was the alleged actions of a so-called rogue trader at UBS in London. Much has been written about Kweku Adoboli. He was charged Friday with fraud and phony accounting. UBS said the trader covered up “unauthorized speculative trading” in equity index futures over the previous three months.
The scandal has engulfed UBS worldwide, including the Americas region. That’s as UBS emerges from the worst of its earlier problems in the Americas and worldwide. These included a tax evasion scandal, credit write-downs, the sale of toxic assets and massive client withdrawals.
“I am not going on the record but the scandal stinks, it absolutely stinks,” one major UBS producer told Registered Rep. “Clients don’t understand. They think their money is at risk. That is the concern.” Mindy Diamond, an industry headhunter, said she knows of one UBS advisor who can confirm that. “The advisor has a client who is on the verge of selling a business for $100 million and had wanted to wire the first $25 million to the UBS advisor as soon as possible,” explained Diamond. “But he said he wouldn’t do that as long as the advisor worked for UBS.”
Diamond claims her phone has been “ringing off the hook” with calls from UBS advisors. “Some want to get more educated about what is happening. Some are on the fence thinking about leaving,” she said. However, Diamond stressed that established advisors should quickly recover from the negative fallout. It was those advisors who were on the fence already about their careers at UBS that might be tempted to move “opportunistically.”
Still, another industry recruiter, Danny Sarch, dispelled the idea the scandal has caused deep-seated unrest among UBS FAs. “Nobody likes to read bad press,” Sarch said. “That said, the scandal hasn’t affected the day-to-day lives of advisors at UBS. If this were a more serious matter, that would be different.”
The FA at UBS nevertheless said there was one downside—gathering assets from new clients. “Client acquisition will suffer in the short-run. Any time you are front-page news, it is never good,” he said. But this advisor said that long term, assuming no further surprises, the scandal will be a footnote in history. “I don’t think anyone is in a panic mode,” he said.
McCann, a respected Wall Street veteran who once ran a sprawling trading operation and later the massive brokerage unit at Merrill Lynch, went into damage control mode this week. The Americas business rolled out webcasts, town halls and posted “resources to support client conversations” on an internal UBS Website, according to the memo.
Meanwhile, in a webcast yesterday to an estimated 350 employees in field management, McCann acknowledged the latest challenge, according to someone who listened to the webcast. These employees include branch managers, complex and regional directors and divisional heads.
The source offered other highlights. McCann emphasized FA satisfaction was at an “all-time high.” He said the scandal would not deter UBS in the Americas in its plans to hire more FAs this year. McCann urged managers to speak to their FAs about their concerns but to act in an even-handed manner. McCann said 2011 was the “year of the turnaround” at UBS Wealth Management America.
In the memo Monday, McCann said UBS WMA continued to “selectively recruit quality people.” That’s as the business attracted assets from new and existing relationships. “We continue to be a profitable business, with the potential to earn $1 billion a year,” he noted. “And, most importantly, we’re building a culture that people are proud to be part of.”
Also, in the memo Monday, McCann noted that UBS had covered the risk that resulted from the unauthorized trades at the center of the scandal. He also noted an independent investigation by a special committee established by UBS. “We must determine how this happened and hold the necessary parties accountable,” McCann told the employees. “More importantly, we must ensure that something like this will not happen again.”