The Banking and Strategy Initiative

Chillin' out till it needs to be funded

UBS pulls off a Kerviel

LONDON, ENGLAND - JANUARY 25:  Workers walk ac...

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The unidentified 31-year old turns out to be a London ETF desk trader Adoboli  was also the earlier rumored Equities desk supplicant emanating from Zurich But The Delta 1  trading member was in proprietary trading and was working with full authority as Director , Delta 1 Trading and ETFs (Linked in/the

Kweku Adoboli, a 31-year old trader in UBS’s London-based exchange traded funds business, was arrested on Thursday morning in connection with a $2bn loss due to unauthorised trading at the Swiss group’s investment bank.

When markets started talking about things being wrong at UBS, there were the other hints that kep gnawing at analysts to figure out what’s wrong. Jerome Kerviel had earlier walked away with damage assessment that was to $6.8 bln in the final assessment though there were other larger figures too out there at the time, the entire assessment itself taking more than 6 months internally and without much damage to the control structure at the bank Kervil was sentenced to three years imprisonment in October 2010

In this case most observers expect the UBS investment bank to virtually fold on itself  Refer our July analysis of things gone wrong Unauthorized trading in all its forms since the 80s has turned out to be a big control nightmare with Senior management of the bank having been shown complicit in all cases since Barings’ and Nick Leeson went down on an Asia desk fully handed over to a single trader. The volatile nature of the business seems to encourage more side betting than any other business with complicit approvals and a short paper trail of just raised memos. Still litigation in the 2008 crisis by SEC incl the settlement for Fabrice Tourre will pale in comparison to the costs for the bank here.

Investment Bank Fines with the SEC

SEC has only charged fines of $160 mln (Goldman Sachs, JP Morgan) and now $200 mln charged to Citi for a SEC settlement on Mortgage tranches mis sold to investors. Here the $2 bln fraud mentioned would be a charge unto the banks profits directly and may involve more holes being discovered later in the month or even till 2012 given the example of Jerome Kerviel at Socgen

UBS will likely report a $500 mln loss on Q3 results next mont h after the fraud and the losses may be higher as more clarity emerges on the poison trades and if there are any counter parties that can come back to the bank

Heads will Roll


Under Gruebel and investment bank boss Carsten Kengeter — themselves both once traders — it hired hundreds of traders in a bid to boost its bond business.

Several analysts said the incident made it more likely Kengeter would be in the firing line, while Gruebel could step down sooner rather than later.


Another analyst who declined to be named said: “Some important heads are going to have to roll, and some are saying that after a series of missteps with the IB, Kengeter himself will have to go.”

Former Bundesbank head Axel Weber is due to join the UBS board in May and take over as chairman in 2013.


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