Rogue trader causes €1.66bn loss at UBS

SWISS banking giant UBS said yesterday that a rogue trader has caused it an estimated loss of €1.66 billion, stunning a beleaguered banking industry that has proven vulnerable to unauthorised trades.

Police in London said they arrested a 31-year-old UBS trader, Kweku Adoboli, in the alleged fraud. UBS declined to confirm his name.

Switzerland’s largest bank warned that it could report a loss for the entire third quarter as a result of the rogue trade, while shares in UBS AG plummeted 8.7% to 9.98 francs (€8.28) on the Zurich exchange by mid-afternoon.

The case immediately evoked memories of Jerome Kerviel, the trader at French bank Societe Generale who secretly gambled away €4.9bn. The scale of that fraud rocked the global financial industry and prompted banks to tighten oversight rules to ensure such large sums couldn’t be traded unnoticed.

The Swiss banking regulator, Finma, said it was in contact with UBS about the incident, which was discovered late on Wednesday.

“From the scale of this case you can be sure that it’s the biggest we’ve ever seen for a Swiss bank,” Finma spokesman Tobias Lux told The Associated Press.

UBS provided little specific information, saying the incident was still under investigation and no client money was involved. The unauthorised transactions could cost UBS almost as much as the 2 billion Swiss francs the bank hopes to save by cutting 3,500 jobs over the next two years.

It comes as UBS is struggling to restore its reputation after heavy subprime losses during the financial crisis that resulted in a government bailout, and an embarrassing US tax evasion case that blew a hole in Switzerland’s storied tradition of banking secrecy.

Peter Thorne, a London-based equities analyst at Helvea, said the loss was financially manageable for UBS. But he said it was a blow to the reputation of UBS and its management, and will likely add to calls for the bank to slim down its investment banking unit.

Adoboli’s profile on the professional networking site LinkedIn showed he spent the past five years working at UBS’s European Equity Trading division after three years as a trade support analyst for the bank. He graduated from the University of Nottingham in 2003 with a degree in E-commerce and digital business.

According to Philip Octave, Adoboli’s former landlord, he lived in an expensive loft on Brune Street for several years before moving out about 4½ months ago. The area is near London’s Brick Lane, a busy street only a few blocks from UBS’s British headquarters.

Picture: Kweku Adoboli: Past five years working at UBS’s European equity trading division.