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British, Swiss regulators probe UBS trading losses

Swiss and British regulators launched a probe Friday into how banking giant UBS could have incurred $2 billion in rogue trading losses, while trader Kweku Adoboli was remanded by a British court over the fraud.

To be conducted by a company independent of UBS, the investigation will examine how the unauthorised trading remained hidden, and assess the strength of the bank’s controls to prevent a repeat, Swiss financial regulator FINMA said.

Meanwhile in London, a British court remanded equities trader Adoboli in custody over the alleged fraud, with one of the three charges against him dating back to 2008.

The 31-year-old wept in the dock at a City of London court as presiding magistrate Carolyn Wagstaff told him he would be remanded in custody until he appears at the same court again on September 22.

Wearing an open-necked white shirt and light blue sweatshirt, Adoboli was read charges of fraud and two of false accounting — one of which dates from 2008 to 2009.

A packed courtroom looked on as Adoboli, the son of a retired United Nations official from Ghana, stared down at his feet while he was ushered out of court to a waiting prison van surrounded by photographers.

Adoboli was represented in court by a lawyer from Kingsley Napley, the same firm that acted for Nick Leeson, the British trader whose losses brought down Barings Bank in 1995.

Adoboli was arrested at UBS’s London offices at 3:30 am (0230 GMT) on Thursday.

Within hours, the bank announced it had lost $2 billion (1.46 billion euros, 1.27 billion pounds) through unauthorised trading.

After two days of questioning by detectives, police charged him on Friday after prosecutors gave the go-ahead.

“City of London Police has since charged the 31-year-old with fraud by abuse of position and false accounting,” a spokeswoman said.

Police said the investigation was ongoing “and officers continue to work in close collaboration with the Serious Fraud Office, the Financial Services Authority and the Crown Prosecution Service.”

The massive losses could force UBS to reduce the size of its investment banking unit and carry out sweeping job cuts, according to reports in Switzerland.

The bank, which had to be bailed out by the Swiss state after it was badly burnt by the subprime mortgage crisis in 2007-2008, had hoped to reap the benefits of 3,500 job cuts it announced last month.

Now thousands more jobs could be slashed from its global workforce of 65,000, news reports said.

Having plummeted by more than 10 percent when the losses were revealed on Thursday, UBS shares rallied on Friday, closing up more than five percent at 10.26 Swiss francs.

Adoboli worked as a director of Exchange Traded Funds (ETFs) in the equities department of the bank’s London offices near Liverpool Street station.

ETFs are shares that can be traded and that track movements in other indexes, meaning they are highly susceptible to short-term volatility in prices.

The Serious Fraud Office said it had recently warned about the “inherent dangers” of ETFs “because they are not transparent”.

The case comes three years after Jerome Kerviel ran up losses of 4.9 billion euros at French bank Societe Generale through a similar type of trading to the transactions in which Adoboli specialised.

The latest case has raised questions over the level of regulation of the financial sector in Britain, which was tightened following the Kerviel affair.

“I don’t think it’s a breakdown of the whole financial system,” said Manoj Ladwa, a senior trader at ETX Capital.

“The problem is within UBS because their risk management systems weren’t quick enough to pick up that this trader had built very big positions within a very short period of time,” he told AFP.

Following the arrest, ratings agencies Moody’s and Standard & Poor’s said they were considering lowering UBS’s credit rating.

Moody’s said its review of the rating will focus on “ongoing weaknesses in the group’s risk management and controls that have become evident again.”

S&P’s pointed out that the trading loss also “comes at a time when UBS’ profitability has been pressured by factors such as low client activity, and the strong Swiss franc.”