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Rogue Trader Reported at UBS: Bank Wobbles; Ring-fencing Cheerleaders Pleased

Posted on the 15 September 2011 by Periscope @periscopepost

Rogue trader reported at UBS: Bank wobbles; ring-fencing cheerleaders pleased

UBS. Photocredit: twicepix

Another rogue trader, another bank in trouble. There was Nick Leeson, who managed to pull down the entirety of Barings Bank in 1995 with an £800 million loss; then there was Jérôme Kerviel, who brought Société Générale to its knees in the mid-2000s to the tune of £3.7 billion. Now there’s –well, we don’t know quite who it is yet. When we do, though, there’s no doubt a film will follow soon – as happened with Leeson, whose story was made into a movie starring Ewan McGregor, called, aptly enough, Rogue Trader.

On Thursday, Swiss bank UBS reported to its investors that it had found a possible $2 billion loss thanks to the actions of a lone gunman. The matter, said Haig Simonian on The Financial Times, was “under investigation.” UBS has been in trouble, losing $50 billion in the credit crunch and having to be bailed out by the Swiss government; and though recently stabilised under Carsten Kengeter (a former Goldman Sachs executive), it has failed to convince investors that it’s still got the goods.

The police arrested a 31-year-old man at 3.30 am this morning in London. He’s being held in custody on suspicion of fraud. The Daily Telegraph reported that Swiss newspaper NZZ claimed the man worked in the bank’s equities division.

Though analysts had predicted that the UBS group would gain a profit of about $1.5 billion, the consquences could now be a loss, when the group posts its third-quarter figures in October. Information, however, was thin on the ground, as according to The Financial Times, officials at the bank could not find where the unauthorised trades had happened, when they’d happened, and couldn’t say when they’d know more. Business Insider was nonplussed: “All rogue trader stories are murky, with big questions about what actually constitutes a rogue trade, but this is just strange.” posted the tweet that suggested the trader was trying to exit a “naked silver short.”

Simonian on The Financial Times took the angle that this will inevitably cause Swiss politicians to call for a downgrade, or even an end to, the bank. Shares in UBS have fallen by 9.6 per cent in Switzerland. The bank insisted that no client positions had been affected.

“For the time being, we have nothing to add,” said a UBS spokesman to The Financial Times.

  • Manageable? Peter Thorne, a London-based equities analyst at Helvea, told The Washington Post that the loss would be financially manageable for UBS, but it was a big blow to their reputation.
  • Staggering. Chris Roebuck, a visiting professor at Cass Business School, told The Daily Telegraph that this is a “staggering demonstration” that people can still get round banks’ systems, and it’s a very strong argument for the ring-fencing of banks, in which private banking is separated from investment banking, whilst the FT’s Alphaville blog said that “[t]he size of the loss suggests that UBS either has a Kerviel on its hands or a leveraged FX trade has blown up.”

“I wonder if his gamble had paid off and made the bank a tidy profit would we still be reading about it?” commented gloucester-lad on SKY NEWS

  • A chance to vilify banks. Jonathan Sibun on The Daily Telegraph said that those who opposed banking reforms should look away now. “Looking for an example of casino banking? Voila!” Politicians will jump at the chance to vilify banks, whilst the reality of the situation will be forgotten amongst all the “hullabaloo.”
  • They’re not rogue traders. Jonathan Guthrie on The Financial Times agreed, saying that Sir John Vickers, who wants to put through the reforms, “can allow himself a wry smile.” The fact that it still seems so easy to dodge regulations will mean that people distrust investment banks even further. The amount lost will put the culprit “around third in the all-time league table of bank bad apples,” after Jérôme Kerviel and “Mr Five Per Cent”, Yasuo Hamanaka. “Rogue trader” is a misnomer. The reality is “a sweaty young man desperate to please bosses with trading coups that go wrong and who cover their tracks to protect their reputations.”

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