The actions of an alleged rogue trader in London have cost UBS around £1.5bn, the Swiss bank has estimated.
UBS had previously estimated that unauthorised activity in the City had cost it approximately £1.3bn, but it revised this figure upwards over the weekend. The bank said it may now post a loss for the third quarter of 2011.
“The true magnitude of the risk exposure had been distorted because the trades had been offset in our systems with fictitious,”” [positions]: said UBS, explaining why the losses occurred.
London trader Kweku Adoboli, 31, has been accused of fraud and two charges of false accounting, with one incident dating as far back as 2008. He has been remanded in custody and will next appear at the City of London Magistrates’ Court for a committal hearing.
Adoboli is the son of a former Ghanian official for the United Nations and started working for UBS in a junior capacity back in 2002. He bought and sold exchange traded funds that track bonds, stocks or commodities at the bank’s global synthetic equities division in the City.
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He admitted his unauthorised activity after UBS began asking questions about his positions, according to a statement from the bank.
“”We have now covered the risk resulting from the unauthorised trading, and the equities business is again operating normally within its previously defined risk limits,”” UBS said in a statement. “As previously stated, no client positions were affected.”
The alleged rogue trading will be investigated by a special committee chaired by senior independent director David Sidwell, the bank said.
A separate probe into why USB failed to notice the activity in question has been launched by the Financial Services Authority (FSA) and the Swiss Financial Market Supervisory Authority. The investigation will also examine the overall strength of the bank’s controls to stop fraud.
The bank’s shares have fallen sharply since the loss was revealed last week and it has led to further calls for increased regulation in the industry.
Rumours of a “massive” savings announcement by UBS on November 17 have been reported in a Swiss newspaper. It said jobs could be lost in the investment banking division.
There has also been speculation that the bank could be forced to close or spin off its investment branch by the Swiss regulator. Some 6,000 people in London are thought to work in investment and trading operations for UBS.
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