UBS charges date back to 2008
The 31-year-old trader charged with fraud over the shock $2bn loss at UBS was accused of criminal activity dating back to October 2008, the peak of the financial crisis.
Kweku Adoboli was remanded in custody at a London court on Friday afternoon on two charges of false accounting and one charge of fraud, 37 hours after he was arrested at 3:30am on Thursday at the request of UBS.
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The charges state that Mr Adoboli, who worked on UBS’s now notorious “Delta One” trading desk, “dishonestly abused” his position, intending to make a gain for himself, “causing losses to UBS or to expose UBS to risk of loss”.
Mr Adoboli wiped away tears as he appeared in the dock of the City of London magistrates’ court. He spoke only to confirm his name, age and address.
The trader’s lawyer, from the same law firm that represented Nick Leeson, whose $1.4bn derivatives losses triggered the collapse of Barings Bank in 1995, declined to comment.
The packed court hearing capped a dramatic day for UBS, as Swiss politicians called for much stricter oversight of the banking sector and analysts warned that the group may have to split off its investment bank from the rest of its business.
“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 (FINMA) separately announced that they would launch a “comprehensive independent investigation” into the events surrounding the $2bn loss, which stunned the markets when it was first revealed by UBS on Thursday morning.
The probe, 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; and ... an assessment of the overall strength of UBS’s controls to prevent unauthorised or fraudulent trading activity in its investment bank,” the regulators said.
The main credit rating agencies – Moody’s, Standard & Poor’s, and Fitch – all placed UBS on review for a possible downgrade, citing concerns about its risk management procedures.
Analysts were still gauging the impact of the loss on UBS’s bottom line, and whether it would be forced to scale back its investment banking operations further than had been planned. Oswald Grübel, the bank’s chief executive, is already reshaping the investment bank around activities that support its vast wealth management business, rather than competing with full-service banks in areas where it lacks sufficient scale.
“We expect UBS will come under material pressure from shareholders and FINMA [the Swiss regulator] to review its investment bank business ... the trading loss being the final straw, leading to material restructuring,” said analysts at JPMorgan Chase.
UBS earned a pre-tax profit of SFr1.2bn ($1.4bn) in its investment bank unit over the first half of the year. A $2bn trading loss, which UBS said could push the entire group into the red for the third quarter, means that the investment bank is now $630m in deficit.
Such a massive trading loss could wipe out any profits from its investment banking operations for 2011, sharply reducing their year-end bonus pay-outs.
“The big concern for all my UBS friends now is that they are not going to get their bonuses,” said one bank worker. “Elsewhere in the sector, people are worried that this kind of attention will bring about much more onerous regulations on the City.”
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