Simon English: Kweku Adoboli’s compulsive gambling chimed with the culture of investment banks
Tuesday 20 November 2012
At some level a man who can gamble away $2bn – at one point his losses were closer to $12bn – must be an interesting and clever man.
On the evidence presented in court it is not obvious where Kweku Adoboli’s unusual gifts lie.
At its heart, Mr Adoboli’s scheme wasn’t much more sophisticated than flipping coins and calling “heads” every single time. As losses came in he simply doubled his bets – it is called the Martingale strategy and it is commonly used by bad gamblers across the globe.
You should at least recoup your losses, goes the theory; it can’t keep coming up “tails”. But in financial markets, it can.
The size of the fraud is such that it is tempting to think of Adoboli as a criminal mastermind, a maths genius who swaggered around town, living large and laughing at the more earnest toilers around him.
While by the end he was certainly well paid – he got a bonus of £250,000 in the year before his trades finally unravelled – as traders go he wasn’t, or at least should not have been, in the big league. His job was fairly mundane. He was supposed to manage a “flat” book, to see that the trades being placed on behalf of clients weren’t exposing his employers UBS to losses. It wasn’t particularly up to him to make money; it was his job not to lose any. At this he can be said to have failed.
“He thought he was this genius hedge-fund manager. He just let it go to his head,” said one observer.
Each time there is a rogue trading scandal outsiders ask how this sort of escapade can possibly go on undetected. While it is hard for UBS to argue that its internal controls were anything other than shoddy, bankers say that rules only work if the people in your employ are relatively normal humans.
The evidence in court made it plain that Mr Adoboli was and probably remains a compulsive, obsessive gambler. He managed to live beyond his ample means, borrowing from payday loan firms as a matter of routine, spread-betting on his own account from both home and work.
He was in personal debt to the tune of £130,000 but felt sure he would win this back.
For big City firms, the temptation to let whiz-kid traders off the leash is high. The gains can be vast, and for so long as they are winning everyone involved wants to believe in the magic and to reap the rewards. Alan Miller, a fund manager at SCM Private, said: “This case highlights the need for the City to restore trust and improve compliance and trading safeguards. There appears to be a cavalier and poorly controlled gambling culture within many investment banks.”
The victims are the bank itself, and perhaps Mr Adoboli’s colleagues, many of whom are now fighting to keep their jobs as UBS undergoes some vicious downsizing.
Across the Square Mile compliance officers and their chief executives will be examining the Adoboli scandal for lessons to learn. They’ll bring in some new rules. Have a training day. Memos will be sent. This will never happen again. Not until next time.
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