A 31-year-old man was arrested in London today in connection with allegations of €1.48bn of rogue trading at Swiss banking giant UBS.
The man, named in reports as Kweku Adoboli, was arrested at 3.30am on suspicion of fraud by abuse of position and remains in police custody, sources said.
The bank, which has 6,000 staff in the UK, revealed earlier that a trader had lost two billion US dollars (€1.48bn) on unauthorised trades and warned that the activity could have tipped the bank to a third-quarter loss.
Oswald Gruebel, UBS chief executive, called the loss “distressing” and said he “will spare no effort to establish how it happened”.
According to his LinkedIn profile, Adoboli works as a director in European equity trading and was previously a trade support analyst at UBS.
He was a student at the University of Nottingham, according to his profile on the business networking website.
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.
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.
Ms Cooper said the arrest will call UBS’s risk management into question and an unexpected trading loss could do “significant reputational damage” to the bank.
She said: “Rich people tend not to want to do business with a bank where there are questions over risk control.
“UBS needs to do a good job in explaining what went wrong and assuring its clients that it will not affect them.”
The London branch of UBS has its main office in Finsbury Avenue, in the heart of the City.
The Zurich-based firm, which employs 65,000 staff worldwide, would not comment further on the arrest.
UBS has been hit by global growth fears and last month said it would reduce its headcount by 3,500 as part of a move to save two billion Swiss francs (€1.7bn) by the end of 2013.
In a short statement today, the bank said: “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 two billion US dollars.
“It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected.”
Shares in the bank were down by more than 7% today.
A memo issued to UBS staff by Mr Gruebel revealed the alleged rogue trading was discovered in the last 24 hours.
UBS, which has three keys in its logo symbolising “confidence, security and discretion”, said no client funds were affected by the incident.
Today’s arrest comes three years after Jerome Kerviel lost French bank Societe Generale around €4.9bn through rogue trading.
That revelation caused tens of billions of pounds to be wiped off shares on the London Stock Exchange – though the market was unaffected by today’s revelations.
Kerviel was sentenced last year to three years in prison, although this is 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 €916m.
Elsewhere, Yasuo “Mr Copper” Hamanaka was sentenced to eight years in prison for billions of pounds of unauthorised copper trading. His activity triggered losses of 285 billion yen (€2.75bn).
UBS was one of a number of banking giants to take a government bailout after the financial crisis.
The firm transferred 60 billion US dollars (€39.7bn) in toxic debts to a fund owned by the Swiss National Bank (SNB).
Philip Octave said he was Adoboli’s landlord when he lived in Brune Street, Shoreditch, until he moved out four months ago.
He said Adoboli had rented a groundfloor flat from him for £1,000 (€1,146) a week.
He said: “He was a very nice guy, very polite. He would speak to anybody. I haven’t got a bad word to say about him.
“I wouldn’t say he was the tidiest person but he was a good tenant.
“He was very well spoken and dressed very smartly. I can’t believe that it (the rogue trader) is him.”
Mr Octave said he asked Adoboli to move out of the apartment so he could renovate it.