UBS Says Rogue Trader Caused $2 Billion Loss

Swiss banking giant UBS said Thursday that a rogue trader caused it an estimated loss of $2 billion, stunning a beleaguered banking industry that has proven vulnerable to unauthorized trades. The swindler reportedly worked at the bank's equity division in London.

Copyright © 2011 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

MELISSA BLOCK, host: If you thought the reputation of bankers couldn't take any more knocks, that was proven wrong today. UBS, Switzerland's largest bank, confessed that one of its traders has lost roughly $2 billion. Yes, one trader, $2 billion. NPR's Philip Reeves picks up the story from London.

PHILIP REEVES: This is the stuff of every banker's nightmares: A rogue trader has somehow lost a couple of billion dollars in unauthorized deals. That, says Swiss banking giant UBS, is what's just happened. The markets were still absorbing this stunning news as Commander Ian Dyson of the City of London Police made this announcement.

Commander IAN DYSON: At 1 a.m. this morning, the City of London Police were contacted by UBS about an allegation of fraud by one of their employees, and at 3:30 a.m., detectives from our force arrested a 31-year-old man on suspicion of fraud by abuse of position.

REEVES: The authorities haven't released the man's details. Multiple news reports say his name is Kweku Adoboli. The focus is on the UBS group's investment bank in London. The Financial Times says Adoboli worked there in a form of complex derivative trading. Exactly what he's alleged to have done or how he allegedly did it isn't yet clear. What is clear, though, is that this is a big blow to UBS at a rocky time for banks. UBS is based in Zurich and employs 65,000 people worldwide, with large staffs in New York and London.

Over recent years, it's weathered layoffs, a bailout from the Swiss government, thanks to the subprime crisis, and big fines in the U.S. over a tax evasion dispute. UBS says the $2 billion losses are distressing, but that client accounts are not affected. This is, though, one of the biggest trading scandals to hit a bank but not the worst. Three years ago, a rogue trader lost nearly $7 billion at the French bank Societe Generale. He's now in prison. And remember Nick Leeson, the British trader who brought down London's prestigious Barings Bank in 1995?

Some analysts are wondering why after these two scandals plus the 2008 financial crisis, it's still apparently possible for a rogue trader to cause havoc. What happened to risk control? Louise Cooper, analyst for the financial firm BCG Partners, thinks this case is not about that.

LOUISE COOPER: Risk control is increased substantially at banks. I just think it's one of these situations where you have a rogue person, and if somebody wants to circumvent the rules, I don't think there's much you can do about it if they're smart, if they're motivated. It happens in all walks of life. It's in human nature to get around the rules.

REEVES: Did Kweku Adoboli, the UBS trader now under arrest, try to get around the rules? That's up to investigators and perhaps ultimately the courts to decide. If he did, it all went wrong. The last update to his Facebook page nine days ago simply says: need a miracle. Philip Reeves, NPR News, London.

Copyright © 2011 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.