Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
Fibonacci And Elliot Wave Predict Stock Market Breakout Highs - 21st May 18
Stock Market Ideal Cycle Low Near - 21st May 18
5 Effects Of Currency Fluctuations On The Economy - 21st May 18
Financial Conditions are Still too Easy for the Stocks Bull Market to End - 21st May 18
US Stock Market Elliott Wave Predictions for 2018 and Beyond - 20th May 18
Are You Still Fearful of Cryptos? - 20th May 18
US Stocks - Why I am Short-term Bearish, Medium-term Bullish - 20th May 18
Looking for a Turn in Gold Price - 20th May 18
GDX Gold Mining Stock Fundamentals 2018 - 19th May 18
Semiconductor Stock Market Canaries: Chirp, Warble… Soon a Croak and Silence? - 19th May 18
Three Drivers of Gold Price - 18th May 18
Gold Market in First Tertile of 2018 - 18th May 18
What Happens Next When Small Cap (Russell) Leads the Stock Market - 17th May 18
Negative Signs for EUR/USD? AUD/USD - Battle - 17th May 18
DOW Jones and CRUDE Oil on a Cliff Edge, Waiting for a Nudge! - 17th May 18
Gold Price No More Subtleness – It’s Show Time! - 17th May 18
VIX Cycles Point to Stock Market Correction - 17th May 18
Trump Sounds End Times Armageddon Trumpet for Jerusalem, Israel Evangelical Prophecies - 16th May 18
Our Next Stock Market Dow Fibonacci Price Targets – Get Ready! - 16th May 18
The Coming Copper Crunch - 16th May 18
Stock Futures Are on a Sell Signal - 16th May 18
What to do When the IRS Comes for Your Property - 16th May 18
Bitcoin Tide Might Have Turned - 15th May 18
UK Online Gambling Market Grows According to UKGC - 15th May 18
Stock Market Study: What Happens Next when Dow Goes Up 8 Days in a Row - 15th May 18
Fibonacci Price Ladder Points to Higher Stock Prices - 15th May 18
U.S. Dollar Rally Is Doomed - 14th May 18
Gloomy Scenarios for the Fed That Should Boost Precious Metals - 14th May 18
US Dollar One Reversal Too Many - 14th May 18
SPX futures are higher, but so is VIX - 14th May 18
Precious Metals and Miners NUGT – The Sleeping Giant Trade - 14th May 18
Is This The Netflix Of Cannabis? - 14th May 18
US Quest for Iran Regime Change: Will EU Sustain the Nuclear Deal - 14th May 18
Stocks Bears Last Stand - 14th May 18

Market Oracle FREE Newsletter

Trading Lessons

Rogue Trader Costs UBS $2 Billion, Stock Price Plunges 11%

Companies / Banking Stocks Sep 16, 2011 - 06:35 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleDavid Zeiler writes: 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

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.

Rogues Gallery
The incident also brought to mind other rogue traders of the past two decades, including Jerome Kerviel, who cost French bank Societe Generale (PINK: SCGLY) $6.7 billion in 2008, and Nick Leeson, whose $1.8 billion in losses in 1995 brought down the British Barings Bank PLC.

With so many previous examples serving as a warning, not to mention its own recent history of trouble, many wondered how such a thing could have happened at UBS.

"No rogue trader works in a vacuum, and UBS's management must have taken its eye off the ball to allow a trader to operate on this scale without sufficient supervision and without the systems to monitor his trades," Simon Morris, a partner at UK law firm CMS Cameron McKenna told Reuters.

Consequences of the UBS rogue trader could extend well beyond its impact on that bank.

By coincidence, the Swiss parliament had scheduled a debate on the country's banking industry with an eye toward more regulation, and possibly forcing the two largest banks - UBS and Credit Suisse Group AG (NYSE ADR: CS) to split off their investment arms to avoid a total collapse of the financial institutions.

Swiss lawmakers also are considering changes that would increase capital requirements for both big banks to 19% of assets.

It's in Their DNA
That such incidents continue to happen raises questions about whether anything can be done to prevent them.

When Societe Generale's Kerviel was in the news, Money Morning Chief Investment Strategist Keith Fitz-Gerald predicted more regulation would not deter rogue traders in the future.

"Despite the fact that the world is now clamoring for more oversight and controls, we suggest that no amount of regulation will help," Fitz-Gerald wrote.

For their part most of the rogue traders appear to believe they're simply doing what is expected of them - earning profits for their company.

"I thought it was incredible that no one came to talk to me about this," Kerviel told a court-appointed psychologist at the time. "My positions made money, so I told myself that it legitimized what I was doing."

With pressure to juice profits creating such overwhelming incentives to break rules both internal and external, the UBS rogue trader really should have surprised no one.

"Clever traders will always find ways to game the system," Fitz-Gerald observed. "Their supervisors will unwittingly encourage this behavior by maintaining the outrageous bonus structures and payouts for which Wall Street is now synonymous."

Source :

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


ugbekpe gb
16 Sep 11, 13:17
Rogue Trader

It is simply unimaginable that regulatory and financial authorities will allow this infraction to go on across financial years. How did it happen? No integrity checks, No year-end worth evaluation, No caps on approved outflows?.

It is mond-boggling how the young chap got away with the infraction.

Heads should roll and the laws reviewed to save the world one more heartache from rogue traders!

17 Sep 11, 17:44
Re: rogue trader

A Rogue trader works in broad daylight, is responsible for $2 billion dollars in losses for UBS. Now UBS can rightfully claim that they will post a quarterly loss.

I wonder.

Is he possibly a convenient target? What if UBS Bank is in fact broke. They are holding a lot of bad paper on their books. They certainly don't want anyone looking at their holdings. Better to blame a rogue.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules