Pressure mounts on UBS as watchdogs order inquiry

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The Independent Online

UBS was under mounting pressure last night as the UK and Swiss authorities mounted an investigation into the $2bn (£1.3bn) loss racked up by an alleged rogue trader at its investment bank.

Britain's Financial Services Authority and the Swiss Financial Market Supervisory Authority announced an independent probe into the unauthorised trading activity at UBS, the control failures that let it go undetected, and whether UBS was capable of preventing unauthorised or fraudulent trading at its investment bank.

The investigation is likely to be carried out by one of the big four accounting firms and the bill will be met by UBS. The FSA did not give an estimate for how long the investigation will take.

The future of UBS's investment bank looks increasingly precarious. Moody's and Standard & Poor's said Kweku Adoboli's alleged activity raised questions about the bank's ability to monitor its traders and the viability of its ambitions in investment banking.

The two big credit rating agencies put UBS's rating under review for a downgrade over concerns about risk management. Moody's cast doubt on UBS's ability to rebuild its troubled investment bank, which almost caused the bank to collapse during the financial crisis.

Moody's said: "The losses call into question the group's ability to successfully complete the rebuilding of its investment banking operations. Therefore, the review will also consider the implications such an event could have for management's ability to continue to grow investment banking revenues in an appropriately risk-contained way."

UBS was the worst-hit of all European banks in the credit crisis when the turmoil exposed vast exposures to toxic debt securities. The investment bank notched up about $50bn of losses, forcing Switzerland's biggest bank to seek a bailout from its government.

Moody's review will extend to the impact of fresh trouble at the investment bank on UBS's core private banking and wealth management businesses. Rich customers deserted the bank during the crisis and UBS had only recently stemmed outflows of funds before Mr Adoboli's actions were revealed.

UBS has been trying to revive the investment bank under Carsten Kengeter, a former Goldman Sachs banker, who was made sole head of investment banking a year ago. The bank is under pressure to bring forward an investor presentation on the business scheduled for 17 November as calls mount for the business to be cut back or scrapped.

It scrapped a planned statement on the rogue trader affair last night after criminal charges were brought against Mr Adoboli.

Standard & Poor's said: "UBS is currently undertaking a strategic review of the size and shape of the investment bank division and we consider that the trading loss may influence the outcome of this process." S&P said the $2bn loss was manageable but that of equal importance was the blow to confidence in the bank's ability to manage its business effectively.

FSA's markets head quits

* The Financial Services Authority's director of markets has resigned, the regulator told staff in a memo yesterday.

AlexanderJustham is said to be leaving to spend time with his family after joining the watchdog just before the financial crisis. The FSA stressed that his departure was unconnected with events at UBS and that he resigned in July.

The City regulator has suffered a number of senior departures in recent months as it prepares to be broken up by the Government.

Hector Sants, the FSA's chief executive, said: "During his time at the FSA, Alexander Justham has made a huge contribution to the FSA's regulation of a key area of the UK's financial services."