UBS Starts Probe Into $2.3 Billion Rogue Trade Loss

Tomahawk, WI 9/19/2011 (PennyPayDay) – UBS has kicked off an internal investigation into the catastrophic failure of its risk systems after rogue equity trades cost the Swiss bank $2.3 billion, raising the pressure on top management.

UBS said its board of directors had set up a committee chaired by independent director David Sidwell, former chief financial officer at Morgan Stanley, to conduct an independent investigation into the trades and the bank's control systems.

"External expectations are that the investigation should take weeks and not months," a UBS insider told Reuters. "The internal investigation will be coordinating with the regulators on their probe."

The Swiss bank stunned markets on Thursday when it announced unauthorized trades had lost it about $2 billion, a figure it increased to $2.3 billion on Sunday. London trader Kweku Adoboli was charged on Friday with fraud and false accounting dating back to 2008.

Chief Executive Oswald Gruebel, who was brought out of retirement in 2009 to turn the bank around, said the alleged fraud would have consequences for strategy and possibly also for himself.

UBS said the trader concealed "unauthorized speculative trading in various S&P 500, DAX and EuroStoxx index futures over the last three months" by creating fictitious hedging positions in internal systems.

The UBS source said there was no indication that others were involved, and the global synthetic equities team in which Adoboli worked was still operating, but added that members of the team would have to stop trading while answering questions as part of the investigation.

The loss is a heavy blow to the reputation of Switzerland's biggest bank, which had just started to recover after its near collapse during the financial crisis and a damaging U.S. investigation into its aiding wealthy Americans to dodge taxes.

"The UBS explanation about how the loss was incurred is similar to those speculated in the market on Friday but in the cold light of day remains just as shocking," said Peter Thorne, analyst at Helvea.

By 1330 GMT UBS shares were up 0.8 percent to 10.2 francs, outperforming a 2.9 percent slide on the European banking stocks index. The European banking index gained 3.9 percent last week, while UBS lost 2.7 percent.

Traders said the shares were playing catch-up after last week's pummeling, and that the more considered figure of $2.3 billion was a cap on the losses.

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