UBS says unauthorised trading losses capped at $2.3 billion

The bank has covered the risks related to the rogue trades, which it says were offset by fictitious positions, and has set up a three-person committee to investigate how this could be allowed to happen.
Kweku Adoboli (AFP)

In a second press release issued last night, UBS said it has covered the risks resulting from the unauthorised trading in its investment bank that were revealed last week and said the loss will be capped at $2.3 billion — some $300 million above the figure first mentioned by the bank in its brief statement on Thursday.

The Swiss bank said its equities business is “again operating normally within its previously defined risk limits”.

This second statement came after 31-year-old UBS trader Kweku Adoboli appeared in a London court on Friday, facing charges of fraud by abuse of position and false accounting dating back to 2008. He was remanded in custody pending a bail hearing on September 22.

UBS still didn’t name Adoboli, but referred to him as a trader in its global synthetic equity business in London. The loss, the bank said, resulted from unauthorised speculative trading in various S&P500, DAX, and EuroStoxx index futures over the past three months.

Hence it seems that while the unauthorised trading has been going on since 2008 — as per the charges Adoboli faces — it is only in the past three months that they have resulted in losses.

According to UBS, the positions taken were “within the normal business flow of a large global equity trading house as part of a properly hedged portfolio. However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS’s risk limits”.

The trader revealed his unauthorised trading activity last Wednesday following inquiries directed to him by the bank’s control functions that were reviewing his positions.

UBS’s board of directors has set up a special committee to conduct an independent investigation into the unauthorised trading activities and “their relation to the control environment” — which supposedly means they will try to figure out why the bank didn’t discover what he was up to much earlier. The committee will be chaired by David Sidwell, a senior independent director on the board, and will also include Ann Godbehere and Joseph Yam, the former CEO of the Hong Kong Monetary Authority.


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