UBS loss 'came from lots of small trades over months'

 
Kweku Adoboli picture on his Facebook page Kweku Adoboli, pictured on his Facebook page, has been charged with fraud

I have learned that Kweku Adoboli carried out vast numbers of small transactions over many months, as he accumulated investments that would ultimately lead to $2bn or £1.3bn in losses for UBS.

According to a banker with a close knowledge of Mr Adoboli's alleged activities, one reason why UBS failed to identify the unauthorised deals till Wednesday was that Mr Adoboli had a close knowledge of UBS's back office or administration procedures: he previously worked in the back office before becoming a trader.

"His knowledge of the back office apparently helped him to disguise what he was doing," the banker said.

He added: "naturally there are concerns about why it took UBS so long to identify what now looks like a long history of rogue trades. But when a trader sets out to systematically mislead his employer, as seems to have happened in this case, the best monitoring systems in the world won't pick up what happened."

This revelation, that it may have been almost impossible for UBS to spot Mr Adoboli's unauthorised dealings at an early stage, is expected to reinforce political pressure in Switzerland for UBS to hive off its investment bank (see my earlier post for more on this).

UBS also apparently believes that Mr Adoboli's activities do not demonstrate that there is something intrinsically dangerous in the activities of the Delta One trading team of which he was a member.

Delta One traders use sophisticated financial techniques, including derivatives, to construct investments - such as Exchange Traded Funds (ETFs) - that track financial indices or products.

The Bank of England and Financial Services Authority have warned that there are dangers in the design of Exchange Trade Funds and the way they are traded.

"It doesn't seem to me that in this case you can lay the blame for the losses on the nature of ETFs," the banker said.

I have also learned that the losses generated by Mr Adoboli were not particularly associated with the decision earlier this month of the Swiss National Bank to force down the value of the Swiss Franc - despite widespread speculation that the devaluation of the Swiss Franc was somehow a trigger for the £1.3bn losses.

UBS is expected to make a detailed statement about Mr Adoboli's transactions after the market closes later this afternoon.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +21

    Comment number 13.

    Kweku Adoboli is just a symptom of a serious disease in the investment market. Bankers have invented a sophisticated one-armed-bandit (slot machine) in place of intelligent trade in goods and services. Describing investment banks as "casino" operations is far nearer the truth than anyone would like. Investment ought to be about providing capital for enterprise, plant and raw material not gambling

  • rate this
    +15

    Comment number 5.

    Good grief we are in an age of computers and databases. How hard is it for the computers to tot up the value of a position a few times a day and set alarms if a floor limit is breached.

    Answer, its' not hard but the bankers are complicit in this activity and turn a blind eye to it in the hope of a fat bonus if they win, and no consequences if they lose.

  • rate this
    +14

    Comment number 16.

    But when a trader sets out to systematically mislead his employer, as seems to have happened in this case, the best monitoring systems in the world won't pick up what happened."

    Good so someone in banking admits the system is so flawed it cannot be regulated, then the ability to trade these Funds should be removed.

  • rate this
    +13

    Comment number 17.

    One definition of "rogue" is:
    An inferior or defective specimen among many satisfactory ones.

    He is no more "one rogue" trader, anymore than News of the World had "one rogue" journalist

  • rate this
    +11

    Comment number 11.

    A timely reminder in the week the report on ring fencing has been published that 'investment' banking is simply gambling on the markets and is not something that should be underwritten by the tax payer. Ring fencing may not go far enough and real consideration should be given to complete separation of retail and business banking from this speculative trading in derivatives and currency.

 

Comments 5 of 169

 

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