Kweli
JF-Expert Member
- Jul 14, 2007
- 1,152
- 302
ZURICHUBS AG was rocked early Thursday by its disclosure that a rogue trader racked up about $2 billion in losses, an announcement that came hours after British police arrested a man on suspicion of fraud.
A person familiar with the matter said the man arrested is Kweku Adoboli, a London-based trader on UBS's exchange-traded-fund desk in London. British police confirmed that they arrested a 31-year-old man in London on "suspicion of fraud by abuse of position" at 3:30 a.m. Thursday, but declined to name him.
According to the U.K.'s Financial Services Authority, Mr. Adoboli has been authorized to work in the securities business since March 2006. According to Mr. Adoboli's LinkedIn profile, he is a director at UBS's ETF desk within a unit called Delta1 Trading. He previously worked as a trade-support analyst at the bank. It is unclear whether Mr. Adoboli is still employed by the bank, according to a person familiar with the situation.
UBS discovered the huge loss late Wednesday and the bank is still working to ensure that all positions are closed, according to a person familiar with the situation. While UBS said publicly the losses totaled $2 billion, a person familiar with the matter said the total is between $1.5 billion and $2 billion.
Regardless, the new shock will raise serious questions about the bank's risk-management systems just three years after its investment bank had to write down $50 billion in securities trades.
The Swiss financial regulator Finma, the Swiss Finance Ministry and the Swiss central bank all declined to comment on the potential loss or its likely causes. UBS said that it is in close contact with Swiss and British regulators.
A person familiar with the situation said that Mr. Adoboli had pursued the fraudulent trades "with criminal energy."
The news sent shares in Switzerland's largest bank down nearly 9% in early trading, although they were down 5.8% by mid-morning. The cost of insuring its five-year bonds against default for one year widened by 0.15 percentage point to 2.25 percentage points.
Analysts at Espirito Santo Investment Bank said the loss looks manageable, but isn't helpful for sentiment and confidence in the bank's risk management. French bank Société Générale SA in January 2008 was rocked by a loss of around 4.9 billion ($6.74 billion) from a series of trades made by one employee
The loss marks a major set back in the efforts by Chief Executive Oswald Grübel to win back client confidence in a bank that had to be rescued by the Swiss National Bank in 2008. Rebuilding the investment bank has been a top priority for Mr. Grübel since he took the helm at the bank in February 2009, although he has struggled to generate large returns without taking on too much trading risk.
As a result of the huge securities write-downs, the investment bank lost 34.4 billion francs ($39.28 billion) in 2008 and it shut large parts of its trading division. It also launched a wholesale revision of its risk-management systems. Banks seek to prevent such unauthorized trading through risk-control systems and daily reviews of trading books, but such losses have always dogged the industry.
Over the last 18 months, Mr. Grübel has tried to push the UBS back into the top ranks of global investment banks, but it has had to contend with tough Swiss banking regulations that are aimed at preventing a repeat of the near-collapse of the bank several years ago. Indeed, regulators have kept a close eye in particular on Mr. Grübel's plan to rebuild the fixed-income, currencies and commodities, or FICC business, which sparked the losses several years ago.
UBS generally has been cautious about taking on too much risk since its troubles and has said it has moved away from proprietary trading, raising further questions as to how a trader could generate such a large loss. Mr. Grübel is a former trader, while Carsten Kengeter, UBS's investment-banking chief, is a former senior executive at Goldman Sachs's FICC business.
While UBS has succeeded in part in winning back client confidence at the investment bank, in July, Mr. Grübel scaled back his targets for the unit, after the FICC business posted sluggish performance. He said he would review the future of the trading business in light of tougher new regulations. He was expected to present a new plan for the unit in November. The bank is in the process of laying off about 5% of its staff, with large cuts expected at the investment bank.
The loss is likely to raise fresh debate in Switzerland as to the role that investment banking plays at UBS and its cross-town rival, Credit Suisse Group. Since the crisis, some Swiss politicians and commentators have urged regulators to push the two big banks to scale down or even spin off their investment-banking units in order to concentrate on their large private-banking businesses, which tend to be far less risky.
Source: Business News & Financial News - The Wall Street Journal - Wsj.com
A person familiar with the matter said the man arrested is Kweku Adoboli, a London-based trader on UBS's exchange-traded-fund desk in London. British police confirmed that they arrested a 31-year-old man in London on "suspicion of fraud by abuse of position" at 3:30 a.m. Thursday, but declined to name him.
According to the U.K.'s Financial Services Authority, Mr. Adoboli has been authorized to work in the securities business since March 2006. According to Mr. Adoboli's LinkedIn profile, he is a director at UBS's ETF desk within a unit called Delta1 Trading. He previously worked as a trade-support analyst at the bank. It is unclear whether Mr. Adoboli is still employed by the bank, according to a person familiar with the situation.
UBS discovered the huge loss late Wednesday and the bank is still working to ensure that all positions are closed, according to a person familiar with the situation. While UBS said publicly the losses totaled $2 billion, a person familiar with the matter said the total is between $1.5 billion and $2 billion.
Regardless, the new shock will raise serious questions about the bank's risk-management systems just three years after its investment bank had to write down $50 billion in securities trades.
The Swiss financial regulator Finma, the Swiss Finance Ministry and the Swiss central bank all declined to comment on the potential loss or its likely causes. UBS said that it is in close contact with Swiss and British regulators.
A person familiar with the situation said that Mr. Adoboli had pursued the fraudulent trades "with criminal energy."
The news sent shares in Switzerland's largest bank down nearly 9% in early trading, although they were down 5.8% by mid-morning. The cost of insuring its five-year bonds against default for one year widened by 0.15 percentage point to 2.25 percentage points.
Analysts at Espirito Santo Investment Bank said the loss looks manageable, but isn't helpful for sentiment and confidence in the bank's risk management. French bank Société Générale SA in January 2008 was rocked by a loss of around 4.9 billion ($6.74 billion) from a series of trades made by one employee
The loss marks a major set back in the efforts by Chief Executive Oswald Grübel to win back client confidence in a bank that had to be rescued by the Swiss National Bank in 2008. Rebuilding the investment bank has been a top priority for Mr. Grübel since he took the helm at the bank in February 2009, although he has struggled to generate large returns without taking on too much trading risk.
As a result of the huge securities write-downs, the investment bank lost 34.4 billion francs ($39.28 billion) in 2008 and it shut large parts of its trading division. It also launched a wholesale revision of its risk-management systems. Banks seek to prevent such unauthorized trading through risk-control systems and daily reviews of trading books, but such losses have always dogged the industry.
Over the last 18 months, Mr. Grübel has tried to push the UBS back into the top ranks of global investment banks, but it has had to contend with tough Swiss banking regulations that are aimed at preventing a repeat of the near-collapse of the bank several years ago. Indeed, regulators have kept a close eye in particular on Mr. Grübel's plan to rebuild the fixed-income, currencies and commodities, or FICC business, which sparked the losses several years ago.
UBS generally has been cautious about taking on too much risk since its troubles and has said it has moved away from proprietary trading, raising further questions as to how a trader could generate such a large loss. Mr. Grübel is a former trader, while Carsten Kengeter, UBS's investment-banking chief, is a former senior executive at Goldman Sachs's FICC business.
While UBS has succeeded in part in winning back client confidence at the investment bank, in July, Mr. Grübel scaled back his targets for the unit, after the FICC business posted sluggish performance. He said he would review the future of the trading business in light of tougher new regulations. He was expected to present a new plan for the unit in November. The bank is in the process of laying off about 5% of its staff, with large cuts expected at the investment bank.
The loss is likely to raise fresh debate in Switzerland as to the role that investment banking plays at UBS and its cross-town rival, Credit Suisse Group. Since the crisis, some Swiss politicians and commentators have urged regulators to push the two big banks to scale down or even spin off their investment-banking units in order to concentrate on their large private-banking businesses, which tend to be far less risky.
Source: Business News & Financial News - The Wall Street Journal - Wsj.com