UBS trader loses £1.5 billion

City shocked as rogue trading strikes again. Finbarr Bermingham reports

The City of London was rocked on September 15 after UBS announced a figure in the region of £1.5 billion had been lost as a result of unauthorised trading. A 31-year-old man, Kweku Adoboli, was arrested in connection with the loss, and has since been remanded in police custody on suspicion of "fraud by abuse of position". Adoboli was a director of the Swiss bank's exchange-traded funds (ETFs) and Delta One trading department, which trades in baskets of securities that track specific indices or commodities. He appeared in the City of London Magistrates' Court on September 22, telling the court that he was "sorry beyond words".

In the fallout from the affair, UBS's share prices fell 8 per cent and the sector faced further calls for an immediate ring-fencing of retail and investment banking. Oswald Grübel resigned from his position as UBS's Chief Executive, while a range of other staff have either fallen on their swords or faced internal disciplinary action as the bank attempts to draw a line under the affair.

UBS's security procedures have also been called into question after it was reported that Adoboli's rogue trading went undetected until he brought it to their attention. New Chief Executive Sergio Ermotti, however, has reportedly told employees that the bank's computer system did detect the activity, but that it "was not sufficiently investigated, nor was appropriate action taken to ensure existing controls were enforced". No reason for the absence of an initial investigation has been forthcoming.

Aidan Neill, formerly a trader at Lehman Brothers and BNP Paribas, said there will be a lot of "nervousness" in the banking sector at the moment, and criticised UBS's lack of security, saying: "Systems need to be incredibly tight; you need to have checks and balances and UBS clearly didn't have them. Some banks are way better than others (in terms of security), and make the people in risk management feel like they run the bank. In most banks, the attitude is that risk management people are a pain, who get in the way."

Adoboli's losses ushered in a period of fresh intense criticism of the nature of trading, with many wondering how one man was in a position to incur such heavy losses. In perhaps a sign of the times, the scandal also led to a flood of accounts of the trader's background, with dissections of his Facebook and LinkedIn profiles appearing in sources as disparate as The Daily Mail, Time and The Wall Street Journal. Adoboli joined UBS in 2006, having graduated from the University of Nottingham in 2003. He initially worked as a trading support analyst in the Equity Trading division, before joining the ETFs and Delta One team and what's described as "elite equity trading".

Adoboli joins an unenviable list of "rogue traders" to have hit the headlines and, in some cases, become household names. Most famous of all is Nick Leeson, who famously brought down Barings Bank in 1995. Adoboli's loss, however, dwarves Leeson's and is reported to be the third biggest hit ever incurred through unauthorised trading, beaten only by Jérôme Kerviel, who lost French bank Société Générale £4.2 billion in 2008 and Japanese trader Yasuo Hamanaka, who cost Sumitomo Corporation £1.7 billion in 1996. Adoboli is due to reappear in front of magistrates on October 20.