Rogue trader ‘who needed a miracle’ costs bank £1.3bn

HE WAS a valued member of an elite team known as Delta One, whose specialist knowledge of complex financial markets won him power and responsibility at a global banking behemoth.

But in the latest example of an individual wreaking havoc at an internationally renowned financial institution, a London-based equity trader was being questioned by police last night in connection with allegations of unauthorised trading which has cost Swiss banking group UBS an estimated £1.3billion.

Kweku Adoboli, a Ghanaian national who joined the firm as a trainee five years ago, confessed recently he was in need of a miracle. He was arrested in a pre-dawn swoop yesterday morning by City of London Police on suspicion of fraud by abuse of position.

In the wake of the 31-year-old’s arrest, which came on the third anniversary of the collapse of US investment bank Lehman Brothers, his employers warned that the rogue trades could leave it reporting a loss for the third quarter of the financial year, with shares in the firm falling by 8 per cent yesterday.

Analysts expressed amazement at the developments and said it offered a “staggering demonstration” of how determined individuals were still able to undermine a bank’s security, despite security safeguards.

Mr Adoboli, a graduate of Nottingham University, worked in the heart of London’s financial district. Employed in the equity division of UBS as director of European trading, he was involved in a trading desk called Delta One that was involved in its exchange traded funds (ETF) business.

Such complex financial instruments were also the stock-in trade of Jerome Kerviel, whose financial malpractices led to French firm Societe Generale losing £3.7bn three years ago.

UBS, which became aware of the rogue trading on Wednesday afternoon, has declined to comment on Mr Adoboli’s activities, but chief executive Oswald Gruebel called the loss “distressing” and vowed to “spare no effort to establish how it happened”.

Police declined to confirm the trader’s identity, but in a statement said: “A 31-year-old man was arrested at 3:30am in central London on suspicion of fraud by abuse of position. He remains in custody.”

In a letter to staff, Mr Gruebel wrote: “We regret to inform you that yesterday we uncovered a case of unauthorised trading by a trader in the investment bank.

“We have reported it to the markets in line with regulatory obligations. The matter is still being investigated, but we currently estimate the loss on the trades to be around $2 billion.”

So grave are the bank’s expected losses – potentially the third largest rogue trading incident in history – it is understood they will undo a projected £1.5bn savings drive announced last month which would have seen it shed 3,500 jobs. UBS employs around 6,000 people in the UK and 65,000 worldwide.

Despite being one of the biggest wealth managers in the world, UBS has endured a torrid few years. It was bailed out by the Swiss government because of its toxic assets in 2008, and paid a fine of nearly £500 million to the US government the following year after being accused by the FBI of helping clients evade tax through offshore accounts.

Louise Cooper, markets analyst at BGC Partners, said the alleged rogue trade is thought to involve a Swiss franc transaction that went wrong after the Swiss National Bank devalued the currency.

Ms Cooper said the arrest will call UBS’s risk management into question and an unexpected trading loss could do “significant reputational damage” to the bank. “Rich people tend not to want to do business with a bank where there are questions over risk control,” she said.

Chris Roebuck, visiting professor at Cass Business School in London, said: “This is a staggering demonstration that all the clever systems that banks now have, especially after the financial crisis, still cannot stop a determined individual getting round them.”

Regulators in London and Switzerland are trying to establish whether the activity took place in UBS’s London incorporated bank or its separate Swiss branch operating in London. If it turns out to be the former, UK regulators will lead the inquiry.

According to the Financial Services Authority register, Mr Adoboli started working for UBS as a trainee investment adviser in March 2006 and has had no disciplinary action taken against him previously. His last update to his Facebook profile, made on 6 September, simply stated: “Need a miracle.” The page has since been taken down. However, those who knew Mr Adoboli described him as a pleasant, well-mannered individual, albeit one who sometimes failed to pay bills on time.

Philip Octave, the trader’s landlord when he lived in London’s fashionable Shoreditch district, said: “He was a very nice guy, very polite. He would speak to anybody. I haven’t got a bad word to say about him.

“I wouldn’t say he was the tidiest person but he was a good tenant. He was very well spoken and dressed very smartly. I can’t believe [the rogue trader] is him.”

Mr Octave said Mr Adoboli rented a 3,000 sq ft ground floor flat from him for £1,000 a week until he moved out four months ago so that the property could be renovated. “There was about two times he was behind in the rent but he always made those payments in due course anyway,” he added. “I never had a reason to doubt him.”