Posted on September 15, 2011

City Rogue Trader Kweku Adoboli Arrested over $2bn UBS Loss

Jonathan Sibun and Jonathan Russell, Telegraph (London), September 15, 2011

Mr Adoboli worked in the bank’s exchange traded funds (ETFs) business and was arrested early this morning.

In a statement the police, who declined to confirm the trader’s identity, said: “A 31-year-old man was arrested at 3.30am in central London on suspicion of fraud by abuse of position. He remains in custody.”

Records from the City regulator suggest Mr Adoboli joined UBS as a trainee in March 2006. The bank is one of the City’s major institutions, with 6,000 staff in the UK and 65,000 worldwide.

Mr Adoboli was hired by UBS after studying at the University of Nottingham, where he worked as communications officer from 2000 to 2001.

The landlord at Mr Adoboli’s former £1,000-a-week apartment in Shoreditch, east London, described him today as a “nice guy”.

Philip Octave, 42, said he moved out of the flat–just a few hundred yards walk from UBS’s London headquarters–“about four months ago” after living there for “about two-and-a-half years”.

“He was a very nice guy, very polite. He would speak to anyone. I don’t have a bad word to say about him,” Mr Octave said.

“He had a girlfriend who I met once. He wasn’t the tidiest person, but he was a good tenant. His girlfriend was a nurse I think, she was a long-term girlfriend. I don’t know where he has moved on to.”

Shares in the bank plunged as much as 9.6pc in Switzerland on the news.

The bank said in a statement: “UBS has discovered a loss due to unauthorised trading by a trader in its Investment bank.

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

The bank said that it may also be forced to report a loss for the third quarter due to the unauthorised trade. UBS assured clients that their positions were not affected.

“It is amazing that this is still possible,” said ZKB trading analyst Claude Zehnder. “They obviously have a problem with risk management. Even when the amount isn’t so high it is once more a loss of confidence that casts UBS in a poor light.

“With this they are losing a lot of credit that they had regained with effort,” he said.

Regulators in London and Switzerland are currently striving to establish whether the activity took place in UBS’s London incorporated bank or its separate Swiss branch operating in London. If it turns out to be the former UK regulators will lead the investigation. If it is the latter it could be the Swiss who control proceedings. The two regulators are understood to be in close contact.

In a memo to staff, the bank tried to calm concerns about the rogue trader’s actions. “Although this news is unfortunate, it does not affect the fundamental strength of our business,” management wrote in an internal email.

The Vickers report this week recommended that banks separate their retail businesses from their riskier investment banking operations to protect despositors in a financial crisis.

The announcement is a major blow for UBS which had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank.

Last month UBS announced plans to axe 3,500 jobs to shave SFr2bn (£1.45bn) off annual costs as it joins rival investment banks in reversing the post-crisis hiring binge and preparing for a tough few years.

Investment banks worldwide have been hit by slow trading due to the debt crisis in Europe and the US, as well as stricter regulations forcing banks to hold more capital to protect them from future financial crises.

Chris Roebuck, visiting professor at Cass Business School, said: “The news that a trader at UBS has been able to blow £1.3bn is a staggering demonstration that all the clever systems that the banks now have, especially after the financial crisis, still cannot stop a determined individual getting round them if they want to.”

“It will yet again confirm to the majority of shareholders who are Swiss that investment banking is not “proper” banking as private banking is and that it is, just as Vince Cables says, “casino” banking.”

Switzerland’s financial markets regulator FINMA is in close contact with Swiss bank UBS over the unauthorised trading.

“UBS immediately informed us. We have taken note of the case and we are in close contact with the bank,” a spokesman for FINMA said.