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UBS Trader Loses 2bn in Unauthorised Trades


Pernell Whitaker

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He could always be a fall guy, there must have been some inside knowledge.

Traders like that operate within many boundaries that especially after the recession, bailouts and previous fraud cases it's almost unbelievable how he wasnt seen.

someone high up knew. but then , its also his job to take high risks to get more pay, so either way there is a management encouragement structure towards maximum profit which can tempt others to defraud.

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What exactly would he be taking the fall for though?

Someone else commanding the trades? Or do they have insurance against rogue trading?

I don't even get why he would have done it anyway? 'cause he's using other people's money, so was he bribed to invest into certain companies? did he have investments in those companies? or was he just trying to be a bigshot and get a big bonus for it? and if so wouldn't that still be illegal if he was successful?

edit: oh right, just read if they've made a big loss they'll make a high risk investment to try and regain the difference

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He could always be a fall guy, there must have been some inside knowledge.

Traders like that operate within many boundaries that especially after the recession, bailouts and previous fraud cases it's almost unbelievable how he wasnt seen.

someone high up knew. but then , its also his job to take high risks to get more pay, so either way there is a management encouragement structure towards maximum profit which can tempt others to defraud.

i can tell you don't work in the sector or if you do your an analyst or clerk doing back office shit

there aren't as many boundaries as you think. i could press a few buttons right now and take a huge position which is way beyond my fund's capital and the bank who margin us wouldn't call till tomorrow morning at 5 am when the daily statement comes out.

all he had to do was use a complex ETF basket, hedge it with other ETF baskets/Forex/Swaps and then alter the statements himself each day. Which isn't hard when UBS margin themselves, so he would have been able to access back office systems considering he probably worked in the back office before becoming a trader.

This will be a Kerviel type incident where the guy is altering statements and changing accounts to cover his tracks whilst he tries in earnest to make back his losses but just digs himself deeper as the Dow tanks and the SNB cap the franc and his whole world turns to shit.

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How does one guy get access to 1billion pounds?

Is this seriously the world we're living in?

Does everyone know that in the 3 main religions, lending money at interest has ALWAYS been forbidden.

Isn't it fucking crazy!?!?

Question thats been running through my head since the whole saga....

Am not usually flattered by extravagant living and spending.

But this shit got me looking @ life from a different peerspective as a whole ..

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Technically couldn't he have just over leveraged?

And opened bad short and long positions

But even so if he had a 50% margin which is near max that's 500million he was allowed to trade with which still confounds all logic given that that is 1/3 of the firms quarterly profits

So I still think something bigger is going on...

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UBS trader told bank of error, the BBC learns

The BBC has learned that the UBS trader being questioned on suspicion of unauthorised trading alerted the bank himself.

The BBC's business editor, Robert Peston, says UBS's internal controls did not pick up the huge loss allegedly generated by its trader Kweku Adoboli.

He says Mr Adoboli told UBS that he had engaged in unauthorised trades.

UBS then examined his trading positions and informed the Financial Services Authority and the police.

Mr Adoboli was arrested by the police at 03:30 yesterday.

Our correspondent says: "The disclosure that it was Mr Adoboli's decision to inform his colleagues of his actions that set alarm bells ringing at UBS, rather than its own monitoring system, will add to concerns that investment banks simply aren't capable of controlling the huge risks that their traders take."

The Financial Services Authority, the City's regulator, is investigating why UBS failed to identify the unauthorised transactions.

Chris Roebuck, visiting professor at the Cass Business School said: "Why did the systems not spot this before it got totally out of control ? This is a key question the risk systems managers must answer - but he must have found a way round the systems to get this far into debt."

UBS would not comment on the matter.

Ratings reviewMeanwhile, the credit rating agency Moody's says it is reviewing UBS's rating after the unauthorised trading led to a $2bn (£1.3bn) loss.

Moody's said its review would focus on "ongoing weaknesses" in the Swiss bank's risk management.

On Thursday, police arrested a 31-year-old man in London in connection with allegations of unauthorised trading.

Kweku Adoboli, believed to work in the European equities division, was still being held for questioning on Friday.

Moody's said that although UBS was strong enough financially to absorb the loss, it had concerns about its risk controls.

"We have continued to express concerns with regards to the ability of management to develop a robust risk culture and effective control framework," the agency said.

UBS was rescued by the Swiss state in 2008, following huge losses on toxic assets held by its investment bank.

It then became embroiled in a serious tax evasion dispute with US authorities and was forced to hand over 300 client names and pay a $780m fine. There was then a second case in which it agreed to hand over data on 4,450 US clients.

Currency movesUBS said no customer accounts had been affected by the rogue trades, but in a letter to its 65,000 staff it warned that they could hit profits.

"The matter is still being investigated. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected," the bank said.

Mr Adoboli is believed to have worked as a director of Exchange Traded Funds in the equities department.

ETFs are a type of tradeable share that track movements in other indexes or commodities, and can be affected by short-term volatility in prices.

UBS declined to say in which department, or country, the rogue trader operated. However, there is speculation that the losses may have occurred in foreign exchange trades.

Louise Cooper, markets analyst at BGC Partners, said they could be linked to last week's sudden sharp fall in the Swiss franc after the Swiss National Bank said it would intervene to hold down its value.

Mr Adoboli's father, John, a retired United Nations employee, said he hoped his son would be freed on bail soon so he could talk to him.

He said he believed in his son's integrity: "From what the reports are saying it could be that he made a mistake or wrongful judgement," he said.

Shares fallThe UBS news has echoes of other rogue trades, including at Societe Generale, where former trader Jerome Kerviel was arrested in 2008 over unauthorised trades which cost the bank 4.9bn euros.

That topped the losses involved in the infamous case in 1995, which saw Briton Nick Leeson cause the collapse of Barings bank after costing the group £800m.

Banks such as UBS have tightened their compliance and rules, but this latest breach "is a staggering demonstration that all the clever systems that the banks now have still cannot stop a determined individual getting round them if they want to," said Professor Chris Roebuck, visiting professor at Cass Business School.

Last month the bank announced 3,500 jobs cuts. Of the 65,000 staff worldwide about 6,000 are in the UK, with the bulk of UBS's investment banking operations based in London and New York.

UBS shares closed 11% lower on Thursday after it announced it was investigating the rogue trades.

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UBS trader told bank of error, the BBC learns

The BBC has learned that the UBS trader being questioned on suspicion of unauthorised trading alerted the bank himself.

The BBC's business editor, Robert Peston, says UBS's internal controls did not pick up the huge loss allegedly generated by its trader Kweku Adoboli.

He says Mr Adoboli told UBS that he had engaged in unauthorised trades.

UBS then examined his trading positions and informed the Financial Services Authority and the police.

Mr Adoboli was arrested by the police at 03:30 yesterday.

Our correspondent says: "The disclosure that it was Mr Adoboli's decision to inform his colleagues of his actions that set alarm bells ringing at UBS, rather than its own monitoring system, will add to concerns that investment banks simply aren't capable of controlling the huge risks that their traders take."

The Financial Services Authority, the City's regulator, is investigating why UBS failed to identify the unauthorised transactions.

Chris Roebuck, visiting professor at the Cass Business School said: "Why did the systems not spot this before it got totally out of control ? This is a key question the risk systems managers must answer - but he must have found a way round the systems to get this far into debt."

UBS would not comment on the matter.

Ratings reviewMeanwhile, the credit rating agency Moody's says it is reviewing UBS's rating after the unauthorised trading led to a $2bn (£1.3bn) loss.

Moody's said its review would focus on "ongoing weaknesses" in the Swiss bank's risk management.

On Thursday, police arrested a 31-year-old man in London in connection with allegations of unauthorised trading.

Kweku Adoboli, believed to work in the European equities division, was still being held for questioning on Friday.

Moody's said that although UBS was strong enough financially to absorb the loss, it had concerns about its risk controls.

"We have continued to express concerns with regards to the ability of management to develop a robust risk culture and effective control framework," the agency said.

UBS was rescued by the Swiss state in 2008, following huge losses on toxic assets held by its investment bank.

It then became embroiled in a serious tax evasion dispute with US authorities and was forced to hand over 300 client names and pay a $780m fine. There was then a second case in which it agreed to hand over data on 4,450 US clients.

Currency movesUBS said no customer accounts had been affected by the rogue trades, but in a letter to its 65,000 staff it warned that they could hit profits.

"The matter is still being investigated. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected," the bank said.

Mr Adoboli is believed to have worked as a director of Exchange Traded Funds in the equities department.

ETFs are a type of tradeable share that track movements in other indexes or commodities, and can be affected by short-term volatility in prices.

UBS declined to say in which department, or country, the rogue trader operated. However, there is speculation that the losses may have occurred in foreign exchange trades.

Louise Cooper, markets analyst at BGC Partners, said they could be linked to last week's sudden sharp fall in the Swiss franc after the Swiss National Bank said it would intervene to hold down its value.

Mr Adoboli's father, John, a retired United Nations employee, said he hoped his son would be freed on bail soon so he could talk to him.

He said he believed in his son's integrity: "From what the reports are saying it could be that he made a mistake or wrongful judgement," he said.

Shares fallThe UBS news has echoes of other rogue trades, including at Societe Generale, where former trader Jerome Kerviel was arrested in 2008 over unauthorised trades which cost the bank 4.9bn euros.

That topped the losses involved in the infamous case in 1995, which saw Briton Nick Leeson cause the collapse of Barings bank after costing the group £800m.

Banks such as UBS have tightened their compliance and rules, but this latest breach "is a staggering demonstration that all the clever systems that the banks now have still cannot stop a determined individual getting round them if they want to," said Professor Chris Roebuck, visiting professor at Cass Business School.

Last month the bank announced 3,500 jobs cuts. Of the 65,000 staff worldwide about 6,000 are in the UK, with the bulk of UBS's investment banking operations based in London and New York.

UBS shares closed 11% lower on Thursday after it announced it was investigating the rogue trades.

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He could always be a fall guy, there must have been some inside knowledge.

Traders like that operate within many boundaries that especially after the recession, bailouts and previous fraud cases it's almost unbelievable how he wasnt seen.

someone high up knew. but then , its also his job to take high risks to get more pay, so either way there is a management encouragement structure towards maximum profit which can tempt others to defraud.

i can tell you don't work in the sector or if you do your an analyst or clerk doing back office shit

there aren't as many boundaries as you think. i could press a few buttons right now and take a huge position which is way beyond my fund's capital and the bank who margin us wouldn't call till tomorrow morning at 5 am when the daily statement comes out.

all he had to do was use a complex ETF basket, hedge it with other ETF baskets/Forex/Swaps and then alter the statements himself each day. Which isn't hard when UBS margin themselves, so he would have been able to access back office systems considering he probably worked in the back office before becoming a trader.

This will be a Kerviel type incident where the guy is altering statements and changing accounts to cover his tracks whilst he tries in earnest to make back his losses but just digs himself deeper as the Dow tanks and the SNB cap the franc and his whole world turns to shit.

actually you;re assumption is wrong. I dont work in that direct sector or know how their system is set up, agreed but i understand what his job is or was and how exhange traded funds work. , and ive worked on teams that deisgned derviatives technology as part of my Mba. my hungarian friend worked in the same team as this guy about 3 years ago.

My understanding of Delta one is why i say that either way he is sort of the fall guy in all of this. Delta one is one of the highest risk securities trading around, and for the guaranteed 5-8% returns clients are promised, the windfall for the bank is immense when it all goes Right about 30-40% returns.

when it goes right, everyone's happy, when it goes wrong it's suddenly fraud. He may have well been involved in by passing back office security, but no know knows this yet for sure, however UBS claiming they didnt see any red flags is very suspect. especially when they say no client positions were affected.

UBS and other banks like it are still taking the short-cut, seeking short-term speculative profits gained by trading in volatile markets, and this one in particular was on the swiss currency. such speculative trades are legal...thats where the trouble begins. JP morgan made $11 billion from such delta one type trades last year

By comparison, The current euro crisis is 2000 "rouge traders" similar to this case, but i dont see people being arrested and hounded on facebook etc.

until we get the full details (which may never really surface), its hard to say, and accessing back office systems as a trader is common.

he may have done that, and if thats the case then hes going prison for sure, but part of the problem is how such systems are regulated. its not just his head that should roll basically.

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