A suspected rogue trader was arrested in London in a dramatic pre-dawn swoop today on suspicion of losing a major investment bank £1.3bn.
Thirty-one-year-old Ghanaian Kweku Adoboli was held on suspicion of committing fraud while working at Swiss bank UBS, after police raided his home at 3.30am. After the raid the bank’s shares fell by seven per cent, as UBS warned that the unauthorised trading could tip the firm into a third-quarter loss.
Bank chief Oswald Gruebel revealed to staff in a memo yesterday that the rogue deals had been discovered within the past 24 hours.
He told staff: ‘We regret to inform you that yesterday we uncovered a case of unauthorised trading by a trader in the Investment Bank. We have reported it to the markets in line with regulatory disclosure obligations.
‘The matter is still being investigated, but we currently estimate the loss on the trades to be around 2 billion US dollars.’
He vowed to ‘establish exactly what has happened’ and underscored that ‘no client positions were affected’.
The German born Group Chief Executive Officer has been in the post since 2009 and called the arrest ‘distressing’.
He urged staff to remain focused on their clients as the investigation continues.
The trader worked at the bank’s headquarters in the very heart of London’s finance district and according to the Financial Services Authority joined UBS in 2006 as a trainee investment advisor.
More recently the former Nottingham University student has been Director of European Equity Trading for the Swiss firm. He is believed to have worked with financial product, Exchange Traded Fund (ETF), an investment fund traded on the world’s stock exchanges.
Louise Cooper, markets analyst at BGC Partners, said today the alleged rogue trade is believed 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 arrest has echoes of the infamous case of Nick Leeson, who was jailed after his ‘rogue trading’ losses of more than £800m caused Barings Bank to collapse. After fleeing to Singapore, he was later jailed for more than six years.
The company employs around 65,000 staff worldwide.
The company employs around 65,000 staff worldwide. However, it said recently it would reduce its staff by 3,500 as part of a bid to save £1.5billion by the end of 2013.
The cuts came as it said pre-tax profits dropped 23 per cent on the previous quarter to £1.3billion in the three months to June 30.
As well as the economic downturn, UBS said regulatory changes such as the Basel rules, which require the bank to hold more capital, were behind the need for the cost reductions.
Despite being one of the biggest wealth managers in the world, UBS has a chequered recent history.
At the height of the banking crisis in 2008 it had to be bailed out by the Swiss government because of its toxic assets.
In the same year it was accused by FBI investigators of helping wealthy American clients to evade tax through offshore accounts.
Following a protracted legal case, UBS agreed in February 2009 to pay a fine of $780million to the U.S. Government.
A restructuring then saw UBS launch a multi-million pounds advertising campaign which used the slogan ‘we will not rest’. UBS Investment Bank’s offices in Stamford, Connecticut, boasts the largest trading floor in the world – it is the size of two American football pitches, and sees more than $1 trillion in assets traded every day.
One of the biggest recent rogue trading cases involved French bank Societe Generale, which lost around £3.7billion in 2008.
That revelation caused tens of billions of pounds to be wiped off shares on the London Stock Exchange.
Societe Generale employee Jerome Kerviel was last year jailed for three years, although this is subject to appeal. He claimed the bank knew about the risk-taking.
Kerviel also landed a book deal and, in Trapped In A Spiral: Memoirs Of A Trader, said he believed the bank was happy with his work.
The bank, in turn, said Kerviel, 34, made bets of up to 50 billion euros (£43 billion) – more than SocGen’s total market value – on futures contracts on three European equity indices, and that he falsified offsetting transactions to mask the size of his bets.
Kerviel, who was born in Brittany, was sentenced last year to three years in prison although he remains free because he has lodged an appeal. He is reportedly working as an IT technician in the Parisian suburbs.
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 £800million.
A spokesman for the City Of London Police confirmed that a 31-year-old man had been arrested in a pre-dawn raid at an address in the city in relation to a fraud allegation adding that ‘he remains in custody.’