Rogue Trader Costs UBS $2 Billion

By Caroline Dobson
Caroline Dobson
Caroline Dobson
September 15, 2011 Updated: October 1, 2015

A logo of the Swiss banking giant UBS is seen at its main headquarters on September 15, 2011 in the center of Zurich. UBS revealed that a rogue trader had lost an estimated $2.0 billion (1.46 billion euros) in unauthorised trades, and that it may plunge into the red as a result. (FABRICE COFFRINI/AFP/Getty Images)
A logo of the Swiss banking giant UBS is seen at its main headquarters on September 15, 2011 in the center of Zurich. UBS revealed that a rogue trader had lost an estimated $2.0 billion (1.46 billion euros) in unauthorised trades, and that it may plunge into the red as a result. (FABRICE COFFRINI/AFP/Getty Images)

UBS AG, Switzerland’s largest bank, discovered on Thursday that a rogue trader had caused a $2 billion loss for the company.

According to a statement issued by the bank, fraudulent positions of 31-year-old Kweku Adoboli, who worked out of the bank’s London office, could have a large impact on the third-quarter earnings.

“The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of US$2 billion. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected,” said the statement.

Adoboli’s role was on the Delta One desk, an area that manages trades for clients and offers advice on speculation or hedging with stock trades. Trading with the bank’s funds is also possible in this department.

Jerome Kerviel, who committed an analogous offense in January 2008, worked in a similar area for France’s second-largest bank, Societe Generale SA. Kerviel’s transactions resulted in an estimated loss of $6.6 billion.

UBS has had a history of unplanned losses. In 1988, Chairman Mathis Cabiallavetta and three senior executives quit their jobs, taking responsibility for the loss of $1 billion due to failed investment with Long-Term Capital Management LP, the dissolved U.S. hedge fund.

According to Bloomberg, an in internal audit confirmed “shortcomings in risk-management processes” before and after UBS was formed, when Union Bank of Switzerland and Swiss Bank Corp. merged.

The timing of the current discovery is sensitive given that banks in general are still vulnerable amid the European debt crises.

The immediate impact on the bank’s stock was felt on Thursday. Shares of UBS dropped by 10 percent following the announcement regarding the fraudulent trader.

According to a Bloomberg report, 67-year-old UBS CEO Oswald Gruebel issued an e-mail to employees, claiming that the loss was “unauthorized” and “distressing” for the firm.