On Thursday Mr. Adoboli was arrested in London on suspicion of causing some $2 billion in losses. The bank said the loss could be enough to wipe out its entire quarterly profits. Investors recoiled, sending shivers through European banks that have already been buffeted by the Continent’s debt woes. Mr. Adoboli had not been charged on Thursday.
Before he was arrested, he had changed his status on his Facebook page to “I need a miracle”. In a statement, UBS said: “UBS has discovered a loss due to unauthorised trading by a trader in its investment bank.”
“The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of $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.”
UBS was one of the banks which had to bailed out at the height of the banking crisis, accepting help from the Swiss government because of its “toxic” assets in 2008. In the same year it was accused by the FBI of helping clients to evade tax, and agreed to pay a fine of $780 million (£493 million).
UBS employs 6,000 people in the UK and 65,000 worldwide. Its staff were told about the alleged fraud in a round-robin email yesterday morning. The scandal wiped £4 billion off the value of shares in UBS, affecting thousands of pensioners whose funds had invested in the company.
It also shook City workers who thought banks had eliminated such risks following the case of Jérôme Kerviel, the Paris-based Société Générale worker who lost £4 billion in 2008.
Both Mr. Adoboli and Mr. Kerviel worked in a relatively plain-vanilla version of a complex derivatives trading business known as the Delta One desk. As part of this business, traders create investments to track customized assets, like a basket of five retail stocks.
In some cases, they use computer programs to profit from tiny differences between the prices of derivatives and their underlying assets — the minute variations between an exchange-traded fund, for example, and the individual stocks underpinning it.
The rogue trading case is a troubling reminder that the controls and warning systems that banks like UBS have put into place in the three years since the financial system nearly collapsed may not be enough to protect the system and could renew calls for separating investment banking operations from less risky businesses.
Mr Adoboli’s father John, a retired United Nations employee, said from his home in Tema, Ghana, that his son had made “a mistake or wrongful judgment”. He said: “We are all here reading all the materials and all the things being said about him. The family is heartbroken because this is not our way of life.
“I brought them up to be God-fearing and to appreciate decency. Growing up and through to school days they were very brilliant and respectful.” Mr Adoboli was educated at the £19,635-per-year Ackworth boarding school near Pontefract, West Yorks, and is described as a “computer whiz” by friends.
The Ghanaian-born banker, a graduate of Nottingham University, works as a “market maker”, advising clients on the prices at which they should buy and sell shares or other assets.
At Nottingham University, part of a group of leading institutions known in Britain as red brick universities, Mr. Adoboli, who focused on computer science, was an active member of the student union. During “freshers” week, he helped organize social activities for the incoming class, according to a university spokesman.
Shortly after graduation in 2003, he joined UBS, becoming a investment adviser trainee in London a few years later. Like many young financial professionals, he enjoyed the finer things in life, listing photography, cycling and wine among his interests on his Bloomberg profile. Until about four months ago, Mr. Adoboli lived in a pricey loft on Brune Street in London, not far from the UBS office.
Neighbours said he had been working long hours recently, often at night, and rarely seemed to be at his east London home. Mr Adoboli, who until recently lived in a £1,000-a-week loft apartment in the City, is described by friends as “a really relaxed, happy guy”.
Recently, however, he had spoken to friends about the pressures of working in the City following the financial downturn, describing it as a “fight”. In a statement, UBS said: “UBS has discovered a loss due to unauthorised trading by a trader in its investment bank.
A neighbor in the building, who described Mr. Adoboli as “a really nice guy,” recalls that the trader once held “quite a loud party.” When the neighbor, who requested anonymity, asked him to turn down his music, a contrite Mr. Adoboli acquiesced and gave him a bottle of champagne for his trouble.
UBS, in announcing the unauthorized trading, offered no additional details about the transactions and said the matter was still being investigated.
For Mr. Adoboli, the next steps are uncertain. A police spokeswoman, who did not provide the name of the trader in custody, said that the person could be sent home, released on bail or charged with an offense. [via The Telegraph and The New York Times]