Archive for Friday, September 16, 2011

Rogue trader suspected in $2 billion loss at UBS

September 16, 2011

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— One man armed with only a computer terminal humbled a venerable banking institution yet again. This time it was Swiss powerhouse UBS, which said Thursday that it had lost roughly $2 billion because of a renegade trader.

The arrest of 31-year-old equities trader Kweku Adoboli in London is one more headache for troubled international banks, and fresh proof that they remain vulnerable to untracked trading that can produce mind-boggling losses.

Adoboli would join a rogue’s gallery that includes Jerome Kerviel, who gambled away $6.7 billion at a French bank until he was caught three years ago, and Nick Leeson, who made so many unauthorized trades that it caused the collapse of a British bank in 1995.

The scale of those frauds rocked world finance. Banks tightened oversight rules to make sure such large sums could not be traded under the radar. But the safeguards, designed to protect the public and shareholders alike, seem to have failed.

UBS discovered irregularities in its trading records Wednesday night, and Adoboli was arrested early Thursday. Swiss banking regulators began looking into the scandal, which sent the bank’s stock sharply lower.

“From the scale of this case, you can be sure that it’s the biggest we’ve ever seen for a Swiss bank,” Tobias Lux, a spokesman for Swiss regulators, said.

Analysts said the bank’s image would be badly hurt. UBS was deemed to have recovered from the lending crisis that hammered banks in 2008 and to have improved its management of risk, said Fionna Swaffield, a bank analyst at RBC Capital Markets.

“This obviously brings this very much into question,” she said.

In a terse statement shortly before markets opened, UBS informed investors that a large loss due to “unauthorized trading” had been discovered. The bank estimated the loss at $2 billion, big enough that the bank said it might have to report a quarterly loss.

In a letter to employees, the bank said it regretted that the incident came at a difficult time: “While the news is distressing, it will not change the fundamental strength of our firm.”

Adoboli was being held by London police. There was no word on whether he had retained a lawyer.

According to his profile on LinkedIn, a social networking site for professionals, Adoboli served on an equities desk at UBS called Delta One and worked with exchange-traded funds, which track different types of stocks or commodities, like gold.

Comments

just_another_bozo_on_this_bus 3 years, 8 months ago

The $2 Billion UBS Incident: 'Rogue Trader' My A$$

by Matt Taibbi

http://www.rollingstone.com/politics/blogs/taibblog/the-2-billion-ubs-incident-rogue-trader-my-ass-20110915

excerpt--

"Thanks to the Gramm-Leach-Bliley Act passed in 1998 with the help of Bob Rubin, Larry Summers, Bill Clinton, Alan Greenspan, Phil Gramm and a host of other short-sighted politicians, we now have a situation where trillions in federally-insured commercial bank deposits have been wedded at the end of a shotgun to exactly such career investment bankers from places like Salomon Brothers (now part of Citi), Merrill Lynch (Bank of America), Bear Stearns (Chase), and so on.

These marriages have been a disaster. The influx of i-banking types into the once-boring worlds of commercial bank accounts, home mortgages, and consumer credit has helped turn every part of the financial universe into a casino. That’s why I can’t stand the term "rogue trader," which is always tossed out there when some investment-banker a-----e loses a billion dollars betting with someone else’s money.

They’re not "rogue" for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys "rogue traders" when they make a billion dollars gambling.

The only thing that differentiates a "rogue" trader like Barings villain Nick Leeson from a Lloyd Blankfein, Dick Fuld, John Thain, or someone like AIG’s Joe Cassano, is that those other guys are more senior and their lunatic, catastrophic decisions were authorized (and yes, I know that Cassano wasn’t an investment banker, technically – but he was in financial services).

In the financial press you're called a "rogue trader" if you're some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you're a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book."

Getaroom 3 years, 8 months ago

Only rarely have I seen such a right on assessment of the boondoggle the financial world is in. This is of course the "Free Market" the Tea Party presidential hopefuls want us all to place our trust in for health insurance and Social Security, which by the way in case no one noticed, SS is NOT an Entitlement Program! Lies and more lies brought to you by the Republican agenda to further strip the middle class of any place to be, except the bottom.

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