Police charge UBS trader with fraud, false accounting

THE 31-YEAR-OLD trader charged with fraud over a shock $2 billion (€1.4 billion) loss at UBS was accused of engaging in criminal activity dating back to as far as October 2008.

Kweku Adoboli was remanded into custody at a London court yesterday afternoon until September 22nd on two charges of false accounting and one fraud charge, just 37 hours after he was arrested at 3:30am on Thursday morning at the request of UBS.

The charges state that Mr Adoboli, who worked on UBS’s now notorious “Delta One” trading desk, “dishonestly abused” his position as a trader, “intending thereby to make a gain for yourself, causing losses to UBS or to expose UBS to risk of loss”.

Mr Adoboli’s lawyer, from the same law firm that represented Nick Leeson, whose $1.4 billion derivatives losses triggered the 1995 collapse of the UK’s Barings Bank, declined to comment.

The packed court hearing – held just an hour after Mr Adoboli was charged by police – capped a dramatic day for UBS, as Swiss politicians called for much stricter oversight of the sector and analysts warned that UBS may have to separate its investment bank from the rest of its operations.

“Experience has shown we have to regulate, we have to control. Banks still haven’t learnt. They think they can regulate themselves. That’s just not so”, said Hildegard Fässler, a Swiss parliamentarian and finance specialist.

The UK’s Financial Services Authority and the Swiss Financial Market Supervisory Authority announced they would launch a “comprehensive independent investigation” into the events surrounding the $2 billion loss.

The inquiry, which will be paid for by UBS, will look at “the details of the unauthorised trading activity; the control failures which permitted the activity to remain undetected,” the regulators said in a joint statement.

The main credit rating agency, Moody’s, Standard Poor’s, and Fitch, have all placed UBS on review for a downgrade.

Analysts were still gauging the impact of the loss on UBS’s bottom line, and the significance of any further retrenchment by its investment bank. While the group has enough capital to withstand the financial impact of a $2 billion hit, such a massive trading loss could in effect wipe out any profits from its investment banking operations for 2011, several experts said.

Over the first half of the year, UBS has earned a pre-tax profit of SFr1.2 billion (€99 million) in its investment bank unit.

A $2 billion trading loss, which UBS said could push the entire group into the red for the third quarter, means that the investment bank is sitting on a $630 million hole. If UBS’s investment bank fails to make any money for 2011, that could trigger so-called “clawback” provisions in bankers’ contracts, which allows UBS to pay out substantially reduced or even zero bonuses to employees whose bonuses are tied to overall profitability, analysts said.

UBS is cutting 3,500 jobs across the bank. – (Copyright The Financial Times Limited 2011)