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[CrackSmokeRepublican]

UBS To Terminate 10,000, Or One Sixth Of Its Employees


 

The move highlights how banks around the world are trying to adapt to a radically changed regulatory and market environment that has left them with lower returns and much higher capital needs for certain business areas and national subsidiaries.

The new strategy, hammered out in several executive board meetings in New York this week and set to be announced next Tuesday, will lead to the closure of a sizeable part of UBS's fixed-income trading operations and other capital-intensive areas of the investment bank.  
"There were several options on the table but UBS has decided on the most radical one," one person familiar with the plan said.

UBS Blames $2 Billion Loss on Rogue Trader  

By MATTHEW SALTMARSH

A photograph from Kweku Adoboli's FaceBook page.A photograph from Kweku Adoboli's FaceBook page.

UBS said on Thursday that a rogue trader in its investment bank had lost $2 billion, delivering a fresh blow to the beleaguered Swiss bank.

The police in London have arrested a European equities trader, Kweku Adoboli, in connection with the case, according to a person with direct knowledge of the situation who was not authorized to speak publicly.

The incident raises questions about the bank's management and risk policies at time when it is trying to rebuild its operations and bolster its flagging client base. The case could also bolster the efforts of regulators who have been pushing in some countries to separate trading from private banking and other less risky businesses.

The revelation about the rogue trader comes as the bank tries to regain its financial footing. Last month, UBS announced it would shed 3,500 jobs, following poor second-quarter results. In an internal memo, the bank said the unauthorized trading could drag down earnings in the third quarter to a loss, adding that "no client positions" were involved in the "unauthorized trading."

"It's a shock, a real negative surprise," said Panagiotis Spiliopoulos, head of research at the private bank Vontobel in Zurich. "People thought that after the bank had been revamped following the 2008 crisis, it was set up in a way that could avoid this kind of event."

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Struggles at Swiss Banking Giant UBS said that a rogue trader in its investment bank had lost $2 billion. The banks is struggling to rebuild credibility after years of crises.

Shares of UBS dropped more than 8 percent on Thursday, while the broader European banking sector was up.

The UBS rogue trading case is the biggest such incident in Europe since Jérôme Kerviel's unauthorized trades in equity-linked futures at the French bank Société Générale in 2008. Mr. Kerviel was convicted last October of breach of trust and other crimes and sentenced to at least three years in prison. He was also ordered to pay restitution of 4.9 billion euros ($6.7 billion), the amount the bank lost in unwinding his trades

UBS uncovered the trading losses late Wednesday, reporting the matter to the police several hours later. At 3:30, the authorities arrested a 31-year-old man at the UBS offices on Finsbury Avenue on suspicion of fraud by abuse of position. He was taken into custody for questioning at a station in the City of London. According to a police spokeswoman, he could be sent home, released on bail pending further inquiry or charged with an offense.

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While the authorities did not release his name, the bank confirmed that the person arrested was the trader in question and that he had worked in London. A person with knowledge of the situation identified the trader as Mr. Adoboli.

UBS said the matter was still being investigated and did not disclose other details. Regulators declined to comment on the trades or the markets in the case.

The trader in question, Mr. Adoboli, who graduated with an honors degree in computer science from the University of Nottingham, was a director on the exchange-traded funds and Delta One desk. It is the same sort of group for which Mr. Kerviel worked at Société Générale.

Delta One desks, considered an increasingly important profit center for big financial firms, undertake a number of activities for clients. In one such area, index arbitrage, traders try to capitalize on slight differences in the price of stock indexes and index futures.

Analysts have offered conflicting theories on the nature of the unauthorized trades. Some have suggested they involved stock-related financial products and others pointed to derivatives in the foreign exchange market, which is worth an estimated $4 trillion a day.  

"The question that will be posed is how could this happen given the fact that all banks have committed to reduce proprietary trading," said Rainer Skierka, an analyst a Sarasin, another private Swiss bank, referring to the practice of firms trading with their own money. "The next question is how the supervisor's line of control works."

Mr. Skierka said the loss was unlikely to materially affect the capital position of UBS. The bank — with 38.7 billion Swiss francs ($44.2 billion) and a Tier 1 ratio of 18 percent, based on criteria from the Bank for International Settlements — is among the strongest worldwide.

"It's more about the timing — given current discussions in the Swiss Parliament on the 'too big to fail' problem of systemically relevant banks — and reputational issues," he said.

Swiss lawmakers are due to debate new rules this autumn that are intended to shore up their two giant banks, UBS and Credit Suisse. Those contentious laws are of particular importance to the Swiss, because banks there generated 6.7 percent of the country's gross domestic product in 2010, according to the Swiss Bankers' Association.

There had been calls in the country for the banks' investment units to be split from their deposit taking sides. But those proposals fell by the wayside and were replaced with plans for tighter capital adequacy rules.

British regulators have been informed of the UBS trading case and are in contact with their Swiss counterparts, the Swiss Financial Market Supervisory Authority. Tobias Lux, a spokesman for the Swiss regulator said it was "promptly" informed of the matter by UBS.

"We are in very close contact with the bank," he said, declining to provide any more details.

UBS has been struggling to turnaround its operations after the crippling events of 2008 when it was forced to accept government support. Earnings at UBS fell to 1 billion francs in the latest quarter, from 2 billion francs in the period a year earlier. In a move to cut costs, the bank announced in late August that it would eliminate 3,500 jobs, with 45 percent coming from the investment banking unit.

This latest episode will present an immediate challenge to a management team that is in flux.

Axel Weber, a former Bundesbank chief, is set to take over as chairman from Kaspar Villiger next year. And the UBS chief executive, Oswald Grübel, who was brought out of retirement to stabilize the bank in 2009, is expected by analysts to follow Mr. Villiger into retirement in the next couple of years.

Julia Werdigier and Chris Newens in Paris contributed reporting.

The internal UBS memo:

    Dear colleagues,

    We regret to inform you that yesterday we uncovered a case of unauthorized 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. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected.

    We understand that you have already had to contend with unfavorable, volatile markets for some time now. While the news is distressing, it will not change the fundamental strength of our firm.

    We urge you to stay focused on your clients, who are counting on you to guide them through these uncertain times.

    We want to reassure you that we, together with the rest of the management, are working closely with the Investment Bank's management and risk and controlling to get to the bottom of the matter as quickly as possible, and will spare no effort to establish exactly what has happened. We will keep you updated on the progress of our investigation.

    Yours,
    The Group Executive Board

http://dealbook.nytimes.com/2011/09/15/ ... ue-trader/

[FrankDialogue]

Kweko Adoboli

It was an abrupt and dramatic interruption to a seemingly gilded life. While average annual GDP per head in Ghana remains less than £1,000, a fraction of that in the UK, Adoboli's father was a senior United Nations official and the family travelled widely.

Adoboli lived in Israel and Syria before being sent as a boarder to the almost £20,000-a-year Ackworth school in Pontefract, West Yorkshire. A popular and hard-working pupil, he left to study digital business at Nottingham University and, in September 2003, joined UBS as a graduate trainee.

After two years as an analyst in the bank's back office, Adoboli made the relatively unusual move to the trading floor, soon joining the desk dealing in exchange traded funds (ETFs), bundles of stocks, commodities or other assets that can be traded like ordinary shares. Success came quickly: within eight years his annual income of £30,000 rose to £360,000.

Adoboli was known as a dedicated trader who put in long hours, although he could be brusque with colleagues. A more junior trader on the ETFs desk, Christophe Bertrand, told the trial he found Adoboli "unfriendly, unpleasant, superior", with a rule that he should never be asked the same question twice.

Adoboli's leisure interests were unexceptional: travel, photography, fine wine. His neighbours, or those that knew him, spoke of a courteous, charming man, albeit one occasionally prone to throwing loud parties.

But once the City of London police's Economic Crime Directorate started to dig, they uncovered – without the help of Adoboli, who refused to answer a single question or even say, "no comment" – a singularly chaotic existence.

Adoboli's long hours and regular work from home was often devoted to complex efforts to cover up more than two years of illicit trading, initially profitable but then increasingly reckless as he tried to recoup losses.

Parallel to this, Adoboli was obsessively playing the market on a private spread betting account. In the year up to his arrest he lost £123,000. "This would have been the lion's share of his disposable income for the year," said Detective Chief Inspector Perry Stokes, who led the investigation. "He was a man who lived and breathed the markets."

Although the prosecution sought to portray Adoboli as a man intent only on making his name and increasing his bonus, the trial judge, Brian Keith, said he believed this was secondary to boosting UBS's profits. But Keith too lamented the "spectacular" fall from grace of a young man he described as privileged, highly intelligent and very charming.

The scenes at Southwark crown court were all a long way from Tema, an industrial town east of the Ghanaian capital, Accra, which has become a popular suburb for affluent commuters. This is where Adoboli's family home, a large cream detached house in a leafy part of the town, sits nestled in a close-knit neighbourhood, punctuated by churches and small shops.

Adoboli's father, John, now retired, told a Ghanaian newspaper he was "heartbroken" at his son's arrest, having brought up his children to be "God-fearing and to appreciate decency". No family members have spoken since.

But one friend, who wished to remain anonymous, told the Guardian that although he sympathised with Adoboli, he should take responsibility for his choices. "The Kweku I know never seemed to be lacking in credibility or integrity, but he has made certain choices and he has to take responsibility for those," he said.

This view chimes remarkably with that of the police. Stokes urged people not to see Adoboli as someone led astray. Stokes said: "He was the star. He believed he would reach the height at UBS. He is one of the most accomplished fraudsters I have seen in my time inforce. This is not someone who made a mistake. This is someone who has chosen the path he has gone down."  

http://www.guardian.co.uk/business/2012/nov/20/kweku-adoboli-gilded-life-star-trader-ghana