Archive for October, 2011

UBS equities heads quit as bank admits mistakes

Wednesday, October 5th, 2011 | Finance News

LONDON/ZURICH (Reuters) -The two heads of the UBS (UBSN.VX) (UBS.N) division that caused a $2.3 billion loss stepped down on Wednesday as an internal investigation into the trading scandal showed risk systems had detected unauthorized activity but failed to respond.

Caretaker chief executive Sergio Ermotti, who took over 11 days ago after Oswald Gruebel quit over the losses, said it was "simply not acceptable" that unauthorized activity was not sufficiently investigated and controls not properly enforced.

"We have to be straight with ourselves. In no circumstances should something like this ever occur," Ermotti said in a memo seen by Reuters. "The fact that it did is evidence of a failure to exercise appropriate controls."

London-based trader Kweku Adoboli has been accused of the rogue trading, and his lawyer told a court last month he was "appalled at the scale of the consequences of his disastrous miscalculations."

Ermotti said the bank had accepted the resignation of the two co-heads of global equities, Francois Gouws and Yassine Bouhara, over the unauthorized trades and said disciplinary action against other members of staff was pending.

Mike Stewart, who only joined UBS from Bank of America Merrill Lynch (BAC.N) two days ago where he had been global co-head of equities, will become sole head of equities, UBS said.

In July, UBS said Stewart would become co-head of global equities with Gouws, while Bouhara -- who joined UBS in 2010 from Deutsche Bank (DBKGn.DE) -- had been due to take on the newly created role of running emerging markets.

DISCIPLINARY ACTION

In a memo to staff, investment bank head Carsten Kengeter said Stewart had already begun work in New York, while he had also asked Don Francese to take over immediately as interim chief operating officer for global equities.

"A number of front office staff have been suspended pending further disciplinary action. We will also be taking appropriate disciplinary measures against responsible individuals in our operations and control functions in the coming weeks," he said.

Kengeter -- who has also faced calls to quit since the scandal broke -- said the investment bank was already acting to improve its overall risk and control framework and would tighten up other processes and procedures.

"We will execute these actions with urgency and accuracy so UBS is able to move forward with confidence," he said.

Eight people in the equities business were facing disciplinary action, among them Adoboli's boss John Hughes, according to a source familiar with the matter.

The co-chief operating officers of the equities division, Sethu Palaniappan and Niraj Gudka, are also among them, the source said.

The rest are front office staff. Other "responsible functions," possibly outside equities, could also face disciplinary action, Ermotti said.

The 51-year-old Ermotti, who joined UBS in April after having been passed over for the top job at Italy's UniCredit (CRDI.MI), has made overhauling the investment bank a priority.

He is expected to announce details about the revamp at an investor day on November 17 and the unit is bracing for more job cuts in addition to the 3,500 for the whole bank announced in August.

Kengeter said UBS was working to align the strategy of the investment bank with the economic and regulatory environment.

"This means further investing in areas that make economic and strategic sense, exiting those that don't, and finding new ways to deliver much more effectively in others," he said.

Chief Financial Officer Tom Naratil said on Tuesday the internal investigation had revealed that the losses on Adoboli's alleged trades only really accelerated in August when big falls on global stock markets hurt bets on equity index futures.

The losses reached $2 billion around mid-August and remained close to that level until they were discovered and closed out, Naratil also said.

(Writing by Catherine Bosley, editing by Bernard Orr)

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Exclusive: Microsoft considers bidding for Yahoo

Wednesday, October 5th, 2011 | Finance News

NEW YORK (Reuters) – Microsoft Corp is considering a bid for Yahoo Inc, resurfacing as a potential buyer after a bitter and unsuccessful fight to take over the Internet company in 2008, sources close to the situation said on Wednesday.

Microsoft joins a host of other companies looking at Yahoo, which has a market value of about $18 billion and is readying financial pitch books for potential buyers, they said.

Those companies include buyout shops Providence Equity Partners, Hellman & Friedman and Silver Lake Partners, as well as Chinese e-commerce giant Alibaba and Russian technology investment firm DST Global, the sources said.

Yahoo shares jumped 10.1 percent on the news to close at $15.92 on Nasdaq. Microsoft shares ended 2.2 percent higher at $25.89 after rising about 3 percent earlier.

Microsoft may seek a partner to go after Yahoo, one of the sources said, without identifying any parties.

No decision has been made and a bid may not materialize as there are internal divisions at the software company on whether it should pursue Yahoo again, a high-ranking Microsoft executive said.

One camp inside Microsoft is hot for the deal, believing that it would obliterate AOL Inc as a competitor and create a strong Web portal that can offer better products to audiences, advertisers and end users, the executive said.

However, another camp is against the deal, feeling that if Microsoft is going to invest billions of dollars in an acquisition it should be one that has more growth potential. Microsoft last tried buying Yahoo in 2008, offering to pay as much as $47.5 billion or $33 a share.

"Yahoo's value hasn't grown in years, and some executives feel we should buy something that is more forward-looking," said the executive who spoke on condition of anonymity.

Yahoo, Microsoft and the other potential buyers declined to comment.

Any auction process for Yahoo is still in the early stages, and the company's financial advisers -- Goldman Sachs and Allen & Co -- are preparing to send financial information to potential bidders, sources have said previously.

BIG BITE

Shortly after ousting Carol Bartz as CEO in early September, Yahoo said it was exploring strategic alternatives after receiving "inbound interest" from a number of parties.

The once-dominant Internet pioneer is pursuing parallel tracks, sounding out deal options as well as engaging in a search for a new CEO.

Yahoo would be a big bite for any single private equity firm, especially at a time when financing markets for leveraged buyouts have dried up.

Industry sources said private equity firms could take over the U.S. operations and sell Yahoo's Asian assets to a buyer such as Alibaba.

"There are many reasons why this thing probably makes sense," said Sid Parakh, analyst at fund firm McAdams Wright Ragen. "If you strip out the variety of assets Yahoo owns, you are pretty much paying nothing for the core business."

If Microsoft fully combined its Bing Internet search business with Yahoo's, it would give it more than 30 percent of the U.S. search market and make it a credible competitor to Google, said Parakh.

Under a 10-year deal struck in 2009, Microsoft's Bing already powers Yahoo search, but it cedes 88 percent of resulting advertising revenue back to Yahoo.

"You would get better scale on the search business, and you could probably cut a good amount of the cost, not just on search side but also on the display side," said Parakh. "There would be economies of scale."

Microsoft is making slow progress in combating Google's dominance in search advertising. According to the latest figures from research firm comScore, Google has 64.8 percent of the U.S. search market, Yahoo has 16.3 pct and Microsoft 14.7 percent.

But even with traffic from Yahoo, Microsoft still has not attracted enough advertising dollars and profitability in search is a long way off.

Last quarter, Microsoft's online services unit -- which includes Bing and the MSN web portal -- lost $728 million. It has lost almost $6.5 billion over last three fiscal years.

Some investors have expressed concerns about cultural fit and Microsoft's ability to manage such a large deal. Microsoft CEO Steve Ballmer has had an antagonistic relationship with Yahoo, and the company has never successfully integrated a large acquisition.

Its 2007 deal to buy online ad firm aQuantive for $6 billion was a flat-out failure. Its $8.5 billion deal to buy Internet phone service Skype has not yet been completed, so integration efforts have not yet begun.

(Reporting by Nadia Damouni and Peter Lauria in New York; Additional reporting by Soyoung Kim, Paritosh Bansal and Bill Rigby, editing by Tiffany Wu and Richard Chang)

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Massachusetts preparing to file foreclosure lawsuits

Wednesday, October 5th, 2011 | Finance News

(Reuters) – Massachusetts on Wednesday said it is preparing to sue big banks related to unlawful foreclosures, dealing another blow to the multi-state talks aimed at resolving those investigations on a national scale.

"I have lost confidence that the banks will bring to the table an agreement that properly holds them accountable for wrongful foreclosures," Massachusetts Attorney General Martha Coakley said in a statement.

Federal and state officials met with representatives of several large U.S. banks this week with hopes of reaching a deal in the coming weeks.

Mortgage servicing units of Bank of America Corp, JPMorgan Chase & Co, Wells Fargo, Citigroup, and Ally Financial are accused of coping with an unexpected deluge of mortgage defaults beginning in 2008 by cutting corners and unlawfully rushing through foreclosure paperwork.

A settlement with all 50 states and federal authorities could help the banks move beyond the legal fallout that has dogged them since the peak of the financial crisis.

But the long-running talks -- which will hit the one-year mark later this month -- have been plagued from the start with criticism from states concerned about the extent of the legal immunity the banks have sought.

Last Friday, California pulled itself from the negotiating team and said the deal under discussion would not provide enough relief to the state's homeowners.

Though Massachusetts is not part of the team negotiating the larger settlement, Coakley has in the past expressed reservations about the direction of the talks.

In July, her office said it was investigating unlawful foreclosures, and examining whether creditors failed to establish whether they had the right to foreclose on a home before doing so, or whether they filed false or misleading documents in connection with a foreclosure.

Her office was examining whether the electronic registry used to track the ownership of mortgages during the height of the housing boom, MERS, conformed to state law.

On Wednesday, Coakley said her office is "aggressively proceeding" with those efforts and is prepared to file lawsuits soon.

"We have begun preparing for litigation," Coakley said.

People close to the multi-state talks have told Reuters a settlement is possible without all states signing on.

Even if a state isn't a signatory to a final deal, its residents could benefit.

The bulk of any settlement -- some 70 to 80 percent -- is expected to settle federal claims, and that pot is expected to be used by banks to provide relief to struggling homeowners across the country.

(Reporting by Aruna Viswanatha; Editing by Gary Hill)

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