Rogue Trader” Has Huge Impact on UBS



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Due to the UBS “rogue trader”, the bank has raised its estimation of loss to $2.3 billion (£1.5 billion). It had previously been $2 billion. In addition, Kweku Adoboli’s trading was uncovered after inquiries from UBS.

Unauthorized Trading

Mr. Adoboli admitted to the unauthorized trading on Wednesday and appeared in court on Friday, with charges of fraud and false accounting. Oswald Gruebel, chief executive of the bank, said he would not resign in a statement, saying, “I’m responsible for everything that happens at the bank. If you ask me whether I feel guilty, then I would say no.”

The “rogue trader” will have a committal hearing on Thursday. He is charged with the fraud between January and September of this year. In addition, false accounts were filed between October 2008 and December 2009, as well as January to September 2011. Despite this information, UBS maintains that the losses only related to the last three months.

Mr. Adoboli had worked for the bank’s global synthetic equities division, and traded funds that tracked different kinds of stocks and commodities. This position had been abused to try and create a gain in income for the trader rather than the bank by creating “fictitious” hedges against the legitimate positions he had also created.

Riskier Options and a Loss of Credit

It has come to light that the trader previously worked in the back office, giving him knowledge of the ins and outs of the bank, and potentially allowing him to conceal his illicit trading. UBS has said that it has launched an internal inquiry, in addition to the inquiries by the Financial Services Authority (FSA), which regulates trade in the City and the Swiss regulator, FINMA, to discover why the bank did not identify the issue.

The three major ratings agencies, Moody’s Standard & Poor’s, and Fitch, are all conducting a review of the credit rating for UBS, and may possibly downgrade the bank’s credit rating. In the banking crisis in 2007 and 2008, UBS lost £35 billion and had to undergo a bailout by the Swiss. Though the bank has now been considered financially strong enough to take care of costs, the concern was for its risk controls. The business will now have to be restructured, and further job losses could be announced in November, after a recent bout of 3,500 job cuts worldwide.

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