UBS man arrested over ‘rogue trades’

Louise Cooper, markets analyst at BGC Partners, said the alleged rogue trade is rumoured to involve a Swiss franc transaction that went wrong after the Swiss National Bank intervened to lower the value of its currency.

It was reported that Mr Adoboli was arrested at 3am on Thursday and is in custody.

Oswold Gruebel, UBS chief executive, reportedly called the loss “distressing” and said he “will spare no effort to establish how it happened”.

The Zurich-based firm said: “UBS has discovered a loss due to unauthorised trading by a trader in its investment bank.

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

The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of $2bn.

UBS under pressure

The company, which employs around 6,000 staff in the UK and 65,000 worldwide, said recently it would reduce its headcount by 3,500 as part of a programme to save 2bn Swiss francs (£1.5 billion) by the end of 2013.

The job cuts came as pre-tax profits in the three months to 30 June dropped 23 per cent on the previous quarter to 1.7bn Swiss francs (£1.3bn).

As well as the economic downturn, UBS said regulatory changes such as the Basel rules, which require the bank to hold more capital, were behind the need for the cost reductions.

Kweku Adoboli is understood to have worked with a product called an Exchange Traded Fund (ETF), an investment fund traded on stock exchanges, much like stocks, which holds assets such as stocks, commodities, or bonds.

After the loss was discovered, Mr Adoboli’s boss, John Hughes, resigned. The bank’s board is to meet to discuss the situation.

According to his LinkedIn profile, Mr Adoboli has worked for UBS since graduating from the University of Nottingham in 2003 where he studied computer science and management. He has previously been a trade support analyst for the group before moving into its European Equity Trading department in 2006.

UBS, which has a number of offices in the UK, said the unauthorised trading took place in its investment banking division.

Barings scandal

One of the biggest recent rogue trading cases involved French bank Societe Generale, which lost around 4.9bn euros (£3.7bn) in 2008.

That revelation caused tens of billions of pounds to be wiped off shares on the London Stock Exchange.

SocGen employee Jerome Kerviel was last year sentenced to three years in prison, subject to appeal. He claimed the bank knew about the risk-taking.

The scandal topped the losses involved in the infamous “rogue trader” case in 1995, which saw Briton Nick Leeson cause the collapse of Barings bank after costing the group £800m.

City not worth the risk?

Lord Myners, a former City minister under the previous Labour administration, told Channel 4 News that the latest city scandal underlined the need for stronger regulation of banks and the city, warning that the risks were greater than ever before. He said the recent Vickers report, which proposed a ringfence to separate the banks retail and investment activities, was not tough enough and criticised the government’s timetable for the implementation of the Vickers proposals:

“They don’t propose to take speculative activity out of banks until 2019, so the taxpayer will be on the hook for another seven years. Such activity should not take place in this country if it exposes taxpayers to any risk at all.”

He was also dismissive of the benefits accruing to the UK economy from the banking sector in general, saying it could not be described as a goose that laid a golden egg: “the economy is operating at a GDP level eight per cent below where it should have been without this crisis. The benefit of this activity in the City is actually quite small and not the great national advantage that some banks seek to persuade us that it is.”