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Two UBS executives resign after trading scandal

Workers repair a lighting fixture at a UBS bank branch in Zurich.

Alessandro Della Bella/AP

The business heads in charge of the UBS AG unit where the bank's $2.3-billion (U.S.) alleged rogue-trading scandal took place have resigned, less than a fortnight after former group chief executive Oswald Grübel did the same.

The Swiss bank said London-based Francois Gouws and New York-based Yassine Bouhara, co-heads of global equities, had quit and would be replaced by Mike Stewart, formerly of Bank of America Merrill Lynch.

Mr. Stewart, who starts immediately as sole head of global equities, had been due to join in a month's time as co-head of the business with Mr. Gouws. Mr. Bouhara was to take on a new role focusing on emerging markets strategy.

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Two weeks into an internal investigation into how Kweku Adoboli, the trader at the centre of the scandal, was able to rack up such losses, the bank also said on Wednesday that "appropriate disciplinary action" would be taken against other staff in the equities business and "responsible staff in other functions."

UBS insiders said Carsten Kengeter, himself under pressure as head of the investment bank, had put the group's internal audit team on a day-and-night rota to get to the bottom of what went wrong.

Aside from the departures of Mr. Gouws and Mr. Bouhara, a further 11 staff in the bank's front office have been suspended, bankers said. The probe will continue to evaluate to what extent those staff could have averted the trading incident altogether or at least caught it earlier. However, UBS is not believed to have uncovered any suggestion of criminal collusion.

In an investor address on Tuesday, finance director Tom Naratil said the unauthorized trading losses had been limited until the end of July, after which market conditions had prompted a sharp acceleration, with the loss reaching about $2-billion around mid-August.

The next phase of the internal probe will examine failings within the bank's control functions – legal, compliance and risk. Separately, the bank's board and regulators in both the U.K. and Switzerland are conducting their own investigations.

In a memo to staff on Wednesday evening, Mr. Kengeter wrote: "We are already taking certain actions to further strengthen the overall risk and control framework at the investment bank, and will implement a redefinition of mandates, processes and procedures where necessary, as well as tighter enforcement of those already functioning properly."

On Tuesday, UBS tried to calm investor nervousness over the affair, saying the bank made a "modest net profit" in the third quarter, though it admitted that had been flattered by a 1.5-billion-franc accounting gain from revaluing the bank's own debt. Analysts said that suggested the underlying performance of the investment bank, particularly in its troubled fixed income business, was faring more poorly than feared.

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UBS insiders are keen to point out, however, that amid troubled times for euro zone banks, counterparties, such as hedge funds, are seeking out the Swiss group. "We're seen as a safe haven," said one senior banker. "We've had multiple prime brokerage balances placed with us [by hedge funds]over the past few days."

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