UBS Rogue Trader Loses Bank $2.3 Billion

blr-editor | September 18, 2011 | Comments (0)

Kweku Adoboli's rougue trades caused a $2.3 billion loss at Swiss-based UBS Bank

Last week, it emerged that a rogue trader working for the Swiss Bank UBS, Kweku Adoboli, was able to bypass system checks and cause losses via rogue trades totaling $2.3 billion.

UBS is Switzerland’s biggest bank and the announcement last week by the Bank stunned the Swiss banking industry.

UBS in particular, was struggling to emerge from the cloud of accusations in its speculative role in the Great Recession via its participation in the housing markets.

In fact, it had to be bailed out by the state after its speculative positions raised the risk of bankruptcy.

London-based UBS-based employee, Kweku Adoboli was arrested and charged on Friday with fraud and false accounting that dated back to 2008.

UBS issued a statement, saying “The loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months.”

It added, “The loss arising from this matter is $2.3 billion. As previously stated, no client positions were affected.”

Apparently, Adoboli concealed the his index future trades from UBS risk limits by executing fictitious cash exchange-traded fund (ETFs) positions in the UBS’s system. ETFs are index funds listed on an exchange and can be traded just like regular stocks.

For years, regulators have been warning about the dangers of ETFs and hedge funds, to little avail from a banking industry that still sees them as high-margin sources of profit.

The bank said it has since covered the full $2.3 billion loss, but this would likely result in a loss for the current quarter, in which they were hoping to show a profit.

Calls for UBS Chief Executive Oswald Gruebel have already begun from large investors, but he announced today that he is not considering stepping down at this point.

In an interview, Grubel assumed responsibility for all activity in the bank. “But if you ask me whether I feel guilty, I say no,” he said.

“If somebody proceeds with criminal energy, we cannot do anything. That will always exist in our job.”