UBS Trader Kweku Adoboli Loses $2.3 Billion in Unauthorized Trades

On September 15, Americans awoke to news that a rogue 31-year-old UBS trader, Kweku Adoboli, had sustained losses of over $2 billion for UBS’s investment banking arm through “unauthorized trades.” The bank immediately informed the press that no client money had been lost in the transactions.

Adoboli worked on UBS’s “Delta One” desk, where clients invest or hedge on a basket of securities. The Delta One desk also uses UBS’s own funds for trades. Adoboli speculated in S&P 500, DAX, and EuroStoxx index futures over a three-month period, leading to the loss. According to UBS, the risk from the trades was covered up by fictitious positions and hedging trades. Once he realized the scope of his loss, Adoboli reported his actions, and UBS turned him over to London police.

British officials have charged Adoboli with fraud and false accounting going back to 2008. The two false accounting charges stem from his alleged falsification of “exchange traded funds” records between October 2008 and December 2009 and between January 2010 and September 2011. Likewise, one fraud charge involves conduct from October 2008 to December 2010, while the other involves conduct in 2011 while Adoboli traded global synthetic equities. UBS has not identified any particular wrongdoing dating to 2008, but prosecutors intended the charges to cover the entire period of Adoboli’s employment at the Delta One desk. Adoboli has since issued a statement that he was “sorry beyond words” for his “disastrous miscalculations.”

UBS chief executive Oswald Grübel has resigned in the wake of the $2.3 billion loss the bank posted as a result of the rogue trader. Grübel accepted responsibility for the loss and resigned against the advice of UBS’s board of directors, according to board chairman Kaspar Villiger. Sergio Ermotti has been appointed interim chief executive. Meanwhile, Carsten Kengeter, the head of UBS’s investment banking arm, has received praise with minimizing the impact of the trader’s malfeasance. UBS plans to keep Kengeter in his position.

In the wake of the disastrous loss, UBS has rejected calls to abandon its investment banking arm. The bank has indicated that its investment bank will be “less complex” and “carry less risk.”