UBS says accused rogue trader caused $2 billion loss


A rogue trader for the Swiss bank UBS was arrested in London on Thursday, authorities said, and is suspected of causing an estimated $2 billion loss in unauthorized trades. (Oli Scarff/GETTY IMAGES)
September 15, 2011

A rogue trader was arrested in a pre-dawn raid in London on Thursday on suspicion of losing the Swiss bank UBS $2 billion in unauthorized trades, police and the bank said.

 The allegation comes at a time of deep uncertainty in the banking sector, with many European banks looking as if they may take large losses if Greece defaults on its debts. Banking shares have been hammered hard in recent months while two of France’s largest banks were downgraded Wednesday by Moody’s credit rating agency.

 London police were tipped off by UBS at 1 a.m. Thursday, and at 3.30 a.m., they “arrested a 31-year-old man at a central London business premises on suspicion of fraud by abuse of position,” City of London Police commander Ian Dyson said in a statement.

While the spokesman would not identify the man, British news media reports identified him as Kweku Adoboli, who, according to a LinkedIn profile of that name, works as a director in European equity trading for the Zurich-based bank.  The University of Nottingham said he graduated with a degree in e-commerce and digital business in 2003. Media reports said his interests on his Facebook profile, which was removed Thursday, included photography, Ghana and Princess Beatrice’s “ridiculous” royal wedding hat.

Adoboli joined UBS as a trainee investment adviser in March 2006, according to the Financial Service Authority’s register, which also shows the London regulator has taken no previous disciplinary action against him.

The incident has evoked comparisons to Jerome Kerviel, a junior trader at the French investment bank Societe Generale, whose rogue bets in 2008 stunned shareholders and resulted in losses of 4.9 billion euros ($6.8 billion). Kerviel is appealing his three-year jail sentence. UBS shares fell 8 percent on the Swiss exchange Thursday. The bank, which employs about 6,000 people in Britain, said the alleged fraud could lead to the bank reporting an overall loss when it reports its next quarterly figures in October.

 In a statement on its Web site, UBS said that it “discovered a loss due to unauthorized trading by a trader in its Investment Bank. The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of USD 2 billion.”

“It is possible that this could lead UBS to report a loss for the third quarter of 2011,” the statement said. “No client positions were affected.” 

Simon Maughan, a London-based banking commentator at MF Global, said that the Swiss bank could “handle” the financial loss but that the allegations dealt a sharp blow to its reputation. “It’s a PR disaster,” Maughan said.

He said UBS shareholders “might just think this is the last straw for UBS’s investment banking strategy to be big and global,” preferring the bank to focus more on its successful wealth management arm.

Bailed out by the Swiss government only three years ago, UBS is struggling to recover from its exposure to toxic assets and a U.S. tax evasion controversy that resulted in hefty fines. Last month, the bank announced that it would reduce its 65,000-strong staff by 3,500 over the next two years in an attempt to save $2.3 billion.

“It’s a shock to UBS and the rest of the investment banking system that someone could have got to this level of problem without either the system, or management, stopping it,” said Chris Roebuck, visiting professor at Cass Business School in London.

Thursday’s arrest coincidentally came on the same day that the Swiss Parliament was due to start debating Swiss banking laws and its “too big to fail” banking sector.

UBS chief executive Oswald Gruebel and the group’s executive board sent a memo to staff early Thursday saying the bank was working to “get to the bottom of the matter as quickly as possible, and would spare no effort to establish exactly what has happened.”

“We understand that you have already had to contend with unfavorable, volatile markets for some time now,” the memo said. “While the news is distressing, it will not change the fundamental strength of our firm. We urge you to stay focused on your clients, who are counting on you to guide them through these uncertain times.”

Correspondent Michael Birnbaum in Berlin contributed to this report.

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