Rogue London trader, 31, loses Swiss bank £1.3bn

UBS plunged into crisis by man who warned: 'I need a miracle'

Nick Clark,Cahal Milmo
Friday 16 September 2011 00:00

A city trader was being questioned last night on suspicion of committing the largest fraud in the history of the Square Mile after the Swiss investment banking giant UBS announced that unauthorised transactions have left it nursing a loss of £1.3bn. Kweku Adoboli, 31, was arrested by City of London Police at 3.30am yesterday at an unnamed office building thought to be UBS's City headquarters.

Ten days ago, the specialist equities trader had delivered a potential hint at rapidly-growing losses when he wrote on his Facebook page: "Need a miracle." The detention of Mr Adoboli on suspicion of acting as a "rogue trader" came on a day of further turmoil about the exposure of the world's banks to eurozone debts and coincided with the third anniversary of the collapse of Lehman Brothers.

It will also add to calls for the strengthening of plans announced this week to place a firewall between "casino" investment banks and their retail arms. In a case which also had disturbing parallels with that of Jérôme Kerviel, the trader whose actions cost the French bank Société Générale £4bn, UBS stunned the markets when it released a statement before 9am saying it had discovered losses of $2bn (£1.3bn) "due to unauthorised trading by a trader in its investment bank".

The company, which Mr Adoboli joined as a trainee five years ago, said last night that it was still investigating the full extent of the damage and what caused the staggering losses in an industry which has repeatedly vowed to tighten its procedures in the wake of a series of unauthorised dealings, beginning with the 1995 collapse of Barings Bank under the weight of £800m in losses racked up by Nick Leeson. UBS is expected to make a fuller statement today.

UBS, which had to be rescued by the Swiss state in 2008, alerted police to the suspicious trades at 1am yesterday after they had been discovered the previous afternoon. Commander Ian Dyson, of City Police, said: "The individual arrested will remain in custody while detectives investigate the matter." Mr Adoboli's boss John Hughes resigned after news of the arrest.

Mr Adoboli, of Ghanaian extraction, has been in Britain since at least the age of 12, when he became a boarder at a private school founded by Quakers near Pontefract, West Yorkshire. The son of retired United Nations official John Adoboli, he spent some of his childhood in the Middle East.

Friends described him as an atypical banker, interested in art and photography. Sanjhana Moon, a photographer who knew Mr Adoboli, said: "He is a kind, ordinary and generous guy. He just likes beautiful things."

He joined UBS as an investment trainee in 2006 and has no previous record for disciplinary action. He was on UBS's European Equity Trading, Delta One desk – similar to the one where Kerviel worked.

Oswald Gruebel, the bank's chairman, admitted that the losses could cause the bank to post a third-quarter loss. He sent out a company-wide memo yesterday in an attempt to calm staff nerves, which read: "While this news is distressing, it will not change the fundamental strength of our firm." The workforce is facing 3,500 job losses after the bank announced a cost-cutting programme a month ago to save 2bn Swiss francs, or about $2.2bn. UBS had announced the plan in the wake of worse-than-expected second-quarter results.

There was a lot of anger from his colleagues. One said: "We've been working incredibly hard for two years to turn things around here and now we're back to the beginning."

Mr Adoboli's vast losses are believed to have stemmed from an extraordinary mistake which saw him buying Swiss francs to hedge a position when he meant to sell them. This left him with a huge exposure to the currency, and when the Swiss National Bank recently intervened to lower the value of its currency, Mr Adoboli was exposed to huge losses. One trader from a rival company said: "This looks like human error on a massive scale, with some bad luck thrown in. But the really big question is, did he try and cover it up?"

While the bank is unlikely to fall to a full-year loss, the damage to its reputation could be more problematic.

Fiona Swaffield, an analyst at RBC Capital Markets, said: "The real issue is the reflection on risk management at UBS. UBS was seen to have recovered significantly from the credit crisis and to have improved its risk management."

UBS suffered losses in 2008 and 2009 which saw wealthy customers rush to withdraw their money from the private banking business. The division only saw net inflows at the end of last year.

The complex nature of the assets Mr Adoboli dealt with saw a recent UBS advert for a Delta One trader require a minimum of five years' equity trading experience, a Master's degree in financial engineering, statistics, maths or information systems, and experience with quantitative trading.

This comes in the week that Sir John Vickers' report called for the split between retail banking and "casino" banking. Terry Smith, chief executive of the fund management group Fundsmith, said the news strengthened the calls made in the Vickers report.

The world's worst rogue traders

Jerome Kerviel, Societe Generale, Paris, 2008

The man from a Brittany backwater who nearly brought down one of France's biggest banks was reminded at trial that he was "no Robin Hood". He was jailed for three years in 2010. $6bn

Yasuo Hamanaka, Sumitomo Corporation, Tokyo, 1996

Known as Mr Five Per Cent, after the share of the world copper market he reputedly controlled, Hamanaka made unchecked trades for 10 years before being caught. $2.6bn

Nick Leeson , Barings Bank, Singapore, 1995

Sentenced to six-and-half years in jail after bringing down the personal bank to the Queen by unsanctioned risk-taking, he now makes a living as an after-dinner speaker. $1.3bn

Toshihide Iguchi, Daiwa Bank, New York, 1995

The former car dealer turned bond trader claimed to have been involved in 30,000 unauthorised trades in 11 years. He wrote a bestselling book about the experience. $1.1bn

John Rusnak, Allfirst bank, Baltimore, 2002

Rusnak was jailed after presiding over a web of fraud to cover up huge losses on foreign exchange trades. He was released from prison two years ago for good behaviour. $700m