Rogue trader costs UBS $2bn

Rogue trader costs UBS $2bn

UBS says it has discovered a potential loss of $2 billion thanks to unauthorised trading by an employee at its investment bank.

In a brief statement, UBS warns the discovery could lead it to report a loss for the third quarter but says no client positions have been affected.

UBS's apparent reluctance to identify the precise source of the loss fuelled early speculation that the bank itself may have been culpable. One unsubstantiated rumour circling in Zurich was that the $2 billion shortfall arose from a risky short on silver.

But by mid-morning reports began to break that police had arrested a 31-year old man, Kweku Adoboli from the bank's equity division in London on suspicion of fraud. Adoboli, who worked for the bank's 'Delta one' proprietary trading desk, had been picked up at 2.30am GMT and was being held in custody.

Shares in the bank fell by over five per cent in morning trading on the news.

In 2008 a rogue trader at Société Général, Jérome Kerviel, clocked up EUR4.9 billion in losses for which he was later sentenced to five years in jail, two of them suspended. Kerviel, too, worked in SocGen's Delta one flow trading division.

The loss comes at a bad time for the European banking industry, which is fighting a rearguard action over regulatory capital requirements, ring-fencing and the imposition of stringent risk and compliance rules for trading firms.

UBS itself has worked hard to restore pride after it had to be bailed out by the Swiss state in 2008 when it purged its books of billions of dollars of toxic assets. Only last month the bank announced plans to slash 3500 jobs in an effort to cut costs by $2.3 billion annually.

Comments: (2)

A Finextra member
A Finextra member 16 September, 2011, 00:08Be the first to give this comment the thumbs up 0 likes

Lets not forget the trailblazing, Manchester City F.C. supporting Nick Leeson who managed to bring down an entire bank - the original rogue trader whose catch phrase "All balls - no Barings" still haunts bank compliance officers.

Siddharth Udani
Siddharth Udani - Consulting - London 16 September, 2011, 17:16Be the first to give this comment the thumbs up 0 likes

Business is to make profits and also losses! I would sympathise with this trader for sure and its to a larger extent organisations fault to have faulty systems to allow such trades. what if the same rogue trader had made profits of $2bn, no media would have bothered?!

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