UBS trader held on charges Sept 17, 2011 0:09:38 GMT -5
Post by anansi on Sept 17, 2011 0:09:38 GMT -5
UBS trader held on charges; bank hit by $2B loss
By : The Associated Press
LONDON — The young trader who rocked Swiss banking titan UBS by allegedly gambling away $2 billion was charged Friday with fraud and false accounting dating back to 2008, as his bank came under a storm of criticism for failing to catch the massive loss.
Kweku Adoboli wiped his eyes and sniffled during a brief court hearing, but did not enter a plea. He will be held until another appearance on Sept. 22, presiding magistrate Carolyn Wagstaff said.
Wearing a light blue sweater and a white shirt, the 31-year-old Adoboli stared at the ceiling as the proceeding got under way. Smiling occasionally, he spoke only to confirm his name, birth date and address in a swanky east London apartment building. His lawyers made no comment to waiting reporters as they left the City of London Magistrates’ Court.
In financial circles, questions continued to swirl.
Some commentators and politicians called for senior managers at UBS to take responsibility for the loss, which the bank said could put its third-quarter results in the red. Ratings agency Moody’s placed UBS’s credit grade on review for possible downgrade, citing worries over the future of its London-based investment unit.
“Until UBS has explained in detail how such a significant loss due to unauthorized trading could happen, and how the problem will be solved, confidence will remain impaired,” said Andreas Venditti, an analyst at Zuercher Kantonalbank.
Switzerland’s Social Democratic Party, which has two representatives in the country’s seven-member government, accused UBS on Friday of “arrogance and greed” for failing to curb its business practices in the wake of the 2008 banking crisis.
In a statement, the party leadership called for consequences, including the replacement of “egomaniacal, arrogant and irresponsible managers;” a ban on proprietary trading for key banks; and a response from UBS to the rumors that the rogue trade was connected to the Swiss National Bank’s decision last week to set a minimum price for euro to Swiss franc exchanges.
The young trader, who was arrested Thursday, had been employed by UBS on an equities desk known as Delta One and worked with exchange-traded funds, which track different types of stocks or commodities such as precious metals.
British prosecutors said one of the alleged offenses dated back to 2008, and indicated that Adoboli is alleged to have made efforts to cover his tracks following unsuccessful trades.
“He involved himself with trades which were highly dangerous for the bank,” prosecutor David Levy told the court.
Adoboli was represented by law firm Kingsley Napley, who previously appeared on behalf of Nick Leeson — the trader who brought down British bank Barings in 1995 after he made around $1.4 billion of losses in unauthorized trades.
Manuel Ammann, a professor of finance at the University of St. Gallen, said it would be difficult for UBS to sell the investment unit in the current depressed financial climate, though some shareholders might prefer it to be split off.
“From a risk point of view there are good grounds for separating the classic credit and payment business from the investment banking, because there’s a danger of cross-infection,” Ammann said. “Shareholders would prefer to have two shares of two focused companies than a single share for a conglomerate.”
UBS stock was up 5.1 percent at 10.25 francs ($11.72) on Friday afternoon. Shares had slumped 10 percent the day before, after the bank said a lone employee had caused the loss with unauthorized trades.
The bank refused to comment on BBC reports that it was Adoboli himself who alerted managers to the loss.
UBS spokesman Andreas Kern also declined to comment on a report in Swiss newspaper Tages-Anzeiger Friday that said the entire trading team in London where the alleged unauthorized deals took place had been suspended.
But Kern said the paper’s report of new job cuts at the investment bank, to be announced at an investors meeting Nov. 17, referred to a reduction of about 1,600 posts already announced last month as part of a plan to save about $2.3 billion (2 billion francs) over the next two years.
The international banking industry has been trying to put stricter controls on its traders in the wake of a 2008 scandal at France’s Societe Generale, when trader Jerome Kerviel gambled away $6.7 billion (€4.9 billion), and the infamous Leeson case.
UBS chief executive Oswald Gruebel was brought in two years ago to rehabilitate the bank’s damaged reputation after a series of missteps that included huge losses in the subprime mortgage market and an embarrassing U.S. tax evasion case.
Ammann, who has observed the Swiss banking industry undergo massive changes over the past decade, said UBS would likely survive the latest scandal. “The financial loss can be stomached and the reputational loss can be repaired,” he said.
Alleged renegade UBS trader had luxury lifestyle
Educated at an exclusive school in a picturesque patch of English countryside, Ghana-born trader Adoboli was known to neighbors as a polite and well dressed young man who mixed grueling hours in London’s financial district with a lavish social life in the capital’s nightspots.
But even the 31-year-old Adoboli, who was charged Friday with fraud and false accounting, appeared to foresee his work hard, play hard lifestyle unraveling. “Need a miracle,” he posted on his Facebook page, just hours before his arrest early on Thursday.
Analysts and regulators were left questioning why Swiss banking giant UBS and its monitoring systems had failed to spot Adoboli’s alleged fraud, which will cost about $2 billion in losses.
“Nobody blames the tiger for stalking its prey, but you do blame the zookeeper for leaving the tiger’s cage open,” said Stephen Brown, professor of finance at New York University’s Stern School of Business.
Between 1992 and 1998, Adoboli was a boarder at Ackworth School, founded in the late 18th Century by Quakers, the religious organization which asks followers to develop a personal approach to religion.
Also known as the Religious Society of Friends, the Quaker faith stresses the importance of honesty and, according to the school’s website, students are asked to observe periods of “reflective silence before meals,” and attend regular worship meetings.
According to Vida Yeboah, a member of staff at the United Nations office in Ghana’s capital Accra, John Adoboli, Kweku’s father, had worked at the U.N. and was know by colleagues as a gentle, humble man.
The Times of London reported that Adoboli’s father’s worked in Ghana, Israel, Syria and Iraq — sending his son away to England to be educated.
At Adoboli’s $31,500-a-year school, set in rolling countryside close to the town of Pontefract, about 180 miles (290 kilometers) north of London, Adoboli would have been taught the value of a peaceful, simple lifestyle.
Despite the childhood schooling in prudence, Adoboli lived in an expensive loft apartment in a trendy corner of east London — close to the capital’s financial district — and discussed on his Facebook profile a fondness for fine dining.
Philip Octave, Adoboli’s former landlord, said he left the 4,000 pounds ($6,300) per month apartment four months ago. “He was a very nice guy, very polite. He would speak to anybody. I haven’t got a bad word to say about him,” Octave said.
“He was very well spoken and dressed very smartly. He was a very quiet chap, actually,” he added.
According to his social media profiles, Adoboli embraced his bustling and ethnically diverse area of east London — once downtrodden, but now home to well-paid traders and bankers working at nearby financial firms.
A favorite local nightspot was The Boundary, a swank rooftop bar and restaurant with views across London’s banking district, known for its $1,200 magnums of champagne and pricey menu of seafood and traditional British game.
Adoboli also listed interests including expensive wine, photography and the gritty U.S. crime drama “The Wire” on Internet profiles, and disclosed he had been dating a nurse for at least a year. The banker said he enjoyed traveling to France, the U.S. and returning to Ghana to visit his parents.
After he graduated from the University of Nottingham in 2003 with a degree in e-commerce and digital business, Adoboli won a job with UBS as trainee investment adviser in 2006 — rising through the company to join its equities desk.
The trader’s LinkedIn profile confirmed he worked on a desk known as Delta One and worked with exchange-traded funds — which track different types of stocks or commodities, such as precious metals. Adoboli and colleagues performed similar work to Jerome Kerviel, who gambled away $6.7 billion at French bank Societe Generale.
Brown said that banks have shown a tendency to fail to spot cases where ambitious and intelligent employees run into difficulty.
“These top banks hire the best and brightest ambitious young people and when they outperform everyone else the bankers want to believe in their brilliance so they look the other way,” said Brown. “That’s exactly what happened at UBS.”
Brown drew parallels with the case of Nick Leeson, the Singapore-based trader who brought down British bank Barings in 1995 after he made around $1.4 billion of losses in unauthorized trades. Law firm Kingsley Napley, which represented Leeson, confirmed on Friday that it had been hired to represent Adoboli.
Kimberly Krawiec, a law professor at Duke University, in Durham, N.C., agreed that the culture inside UBS would need scrutiny following Adoboli’s arrest.
“In the Kerviel case all the blame went to the rogue trader and Societe Generale got away with a slap on the wrist,” Krawiec said. “That was a disappointing outcome because you have to accept there are broader forces at work when traders take on positions that are large enough to threaten large institutions and markets.”