A rogue trader at UBS AG (NYSE ADR: UBS) lost $2 billion on a series of unauthorized transactions, the bank disclosed yesterday (Thursday) despite internal risk controls designed to prevent such activity.
An employee of the London UBS desk that trades exchange-traded funds (ETFs), 31-year-old Kweku Adoboli, was arrested yesterday on suspicion of fraud.
"This is a frightening level of wrongdoing in a bank that was held up as the world class example of good risk management before the [2008 financial] crisis," Chris Roebuck, a former UBS employee and a current visiting professor at Cass Business School, wrote in on efinancialnews.com.
The company's stock fell 11% on the news.
UBS warned that its third quarter probably would be unprofitable, although analysts say the bank - Switzerland's largest - should be able to absorb the loss. Previously UBS had forecast a profit of $1.5 billion for the third quarter.
The UBS rogue trader revelation is just the latest blow to its finances and its reputation. From 2006 through 2009, the UBS investment bank division recorded $65 billion in losses, from which the bank had only recently recovered.
"How many times do we have to see huge UBS losses?" Simon Maughan, head of sales and distribution at MF Global Ltd. in London told Businessweek. "It looks unreformed, unwieldy and ultimately unsustainable. This could be a critical tipping point for UBS's strategy."
Some speculated that the incident could tarnish other UBS divisions.
"The key area of damage in our view is reputational and extends beyond the investment bank, into UBS's private banking business," Goldman Sachs (NYSE: GS) said in a note to clients.
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