UBS Fired Senior Investment Banker for Allegedly Not Informing Superiors About Buyout-Loan Details
Episode shows how government crackdown on leveraged lending continues to roil banks
UBS Group AG fired a senior investment banker because he allegedly failed to apprise his managers of details of a leveraged-buyout loan, highlighting the pressure Wall Street firms are under to keep a lid on risk in the lucrative business.
The Swiss bank in December dismissed James Boland, who ran its leveraged-finance group in the Americas, and a lieutenant. Their alleged offense: not informing superiors and the bank’s compliance officials that they had reclassified a bond the firm was underwriting as a loan, according to people familiar with the matter.
That matters because bank loans are subject to government guidelines aimed at curbing excessive risk, while bonds aren’t, and firms that flout the will of regulators risk sanctions including potential fines.
Mr. Boland has said his superiors were informed of the reclassification, according to the people, and he is appealing his dismissal. He didn’t respond to requests for comment. UBS declined to comment.
According to records from the Financial Industry Regulatory Authority, UBS fired the men because they “failed to provide the requisite information to control functions and management so they could understand and properly evaluate under firm policies and practices a change in the previously approved structure of a transaction.”
It didn’t provide more information on the matter. The second former employee, Peter Chomyonk, didn’t respond to requests for comment either.
Bloomberg earlier reported on the Finra posting but didn’t elaborate.
The episode shows how the leveraged-lending guidelines, issued in 2013 by the Federal Reserve and other regulators, continue to loom large at banks and create unintended consequences even though the agencies have taken a less-aggressive stance since President Trump took office.
At the center of the controversy is a $250 million loan private-equity firm Ares Management Corp. used to acquire a majority stake in a Midland, Texas, oil-and-gas company.
UBS had planned to finance the deal with a bond, the people said. But after officials at the Swiss bank realized they couldn’t provide enough disclosure for such a deal to pass legal muster, they switched it to a loan, which carries less-stringent disclosure requirements. Unlike bonds, however, loans are subject to the guidelines regulators put in place as part of broader efforts to limit excessive risk taking in the wake of the financial crisis.
There is no sign that the loan ran afoul of government guidelines. Even though the loan was successfully syndicated to investors, UBS temporarily held on to a piece of it, and that is what caused the guidelines to come into play, one of the people said. The matter is headed for arbitration.
In a typical leveraged buyout, a private-equity firm acquires a company mainly with borrowed money, with a goal of selling it later at a profit. Those borrowings often take the form of leveraged loans, which are extended to highly indebted companies.
Among other things, the leveraged-lending guidance discourages banks from participating in deals that involve debt of more than six times a company’s earnings before interest, taxes, depreciation and amortization, or Ebitda. It has been a major nuisance for banks over the past five years, forcing them at times to cede lucrative business to nonbank competitors that aren’t subject to the regulations.
But following the election of President Trump, whose administra