Investment bank UBS was in danger of collapse from the activities of rogue trader Kweku Adoboli, a court is told.
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In the opening of the trial of Adoboli, Southwark Crown Court heard that at one point the 32-year-old trader was in jeopardy of causing losses of £7.4bn. In the end Adoboli "gambled away" £1.4bn of the Swiss bank's money in high-risk trades, prosecution counsel Sasha Wass QC said.
"He is on trial because he lost his bank $2.3bn (£1.4bn)," she said. "He fraudulently gambled it away. He also in doing so wiped around 10 per cent or about $4.5bn (£2.8bn) off the bank's share price.
Like most gamblers, he believed he had the magic touch. Like most gamblers, when he lost, he caused chaos and disaster to himself and all of those around him. - Sasha Wass QC
"He did all of this by exceeding his trading limits, by inventing fictitious deals to conceal this and then he lied to his bosses. Mr Adoboli's motive for this behaviour was to increase his bonus, his status within the bank, his job prospects and of course his ego.
"Like most gamblers, he believed he had the magic touch. Like most gamblers, when he lost, he caused chaos and disaster to himself and all of those around him.
Prosecutor says jury will hear very complex and sometimes confusing details about how bankers operate - the stuff ceo's struggle to get!— siobhan kennedy (@siobhankennedy4) September 14, 2012
"He was risking the very existence of the bank by gambling its resources, ultimately for his own benefit. In effect, Mr Adoboli had ceased to act as a professional investment banker and had begun to approach his work as a naked gambler."
Adoboli, from east London, is accused of two counts of fraud and two counts of false accounting whilst working at UBS between October 2008 and September 2011. He has pleaded not guilty to the charges. At the time the charges relate to, he was working on the exchange traded funds (ETF) desk (see box, below)
ETFs are financial instruments that allow holders to track indices rather than buying the underlying securities outright. They are a way for investors to gain exposure to markets that are illiquid or hard to access and are often used by large institutions like pension funds.
Ms Wass said: "When you put your life savings in a pension fund you do not expect an investment banker to gamble it on the toss of a coin. You expect him to limit the downside and maximise the growth of the investment for your old age."
The court heard that Adoboli admitted his activities in an email to chartered accountant William Steward. The email is below:
It is with great stress that I write this mail. First of all the ETF (Exchange Traded Funds) trades that you see on the ledger are not trades that I have done with a counterparty as I previously described.
I used the bookings as a way to suppress the PnL (profit and loss) losses that I have accrued through off-book trades that I made. Those trades were previously profit making, became loss making as the market sold off aggressively though the aggressive sell-off days of July and early August.
Initially, I had been short futures through June and those lost money when the first Greek confidence vote went through in mid-June. In order to try and make the money back I flipped the trade long through the rally.
Although I had a couple of opportunities to unwind the long trade for a negligible loss, I did not move quickly enough for the market weakness on the back of the first back macro data and then an escalation Eurozone crisis cost me the losses you will see when the ETF bookings are cancelled. The aim had been to try and make the money back before the September expiry date came through but I clearly failed.
These are still live trades on the book that will need to be unwound. Namely a short position in DAX futures [which had been rolled to December expiry] and a short position in S and P 500 futures that are due to expire on Friday.
I have now left the office for the sake of discretion. I will need to come back in to discuss the positions and explain face to face, but for reasons that are obvious, I did not think it wise to stay on the desk this afternoon.
I will expect that questions will be asked as to why nobody else was aware of these trades. The reality is that I have always maintained that these were EFP trades to the member of my team, BUC, trade support and John Di Bacco (Adoboli's manager).
I take full responsibility for my actions and the stilt storm that will now ensue. I am deeply sorry to have left this mess for everyone and to have put my bank and my colleagues at risk.
The court heard that the episode knocked back UBS in its efforts to recover from near collapse during the 2008 financial crisis. It led to a management shake-up, a change of strategy, a tightening of internal controls and a reduced 2011 bonus round for some staff.
The court is yet to hear from Adoboli's defence.