15-09-2011, 02:58 PM
15-09-2011, 02:58 PM
15-09-2011, 07:05 PM
Fixed the headline:
Here's some more of the official story as channelled through the Guardian:
I note that the fingered "rogue trader" is a black man.
I also note that the story is related the revaluation of the Swiss Franc. That event is covered in post #586 here.
Note Denninger's comments there:
So, UBS was caught highly exposed and highly levered when the Swiss National Bank decided to revalue their currency by 10%.
$2 billion pissed away on the roulette table.
The corporate suits have a brainwave: Gee let's blame a rogue trader.....
Quote:UBS $2 billion perfect patsy held in London
Here's some more of the official story as channelled through the Guardian:
Quote:A 31-year old man Kweku Adoboli has been arrested by City of London Police on suspicion of fraud in connection with an alleged rogue trading incident that has cost Swiss bank UBS around $2bn (£1.3bn).
The Zurich-based bank uncovered the incident in the past 24 hours. Shares in UBS plunged nearly 10% after it revealed the loss, which could push the bank into the red for the current financial quarter.
The City of London Police confirmed they had arrested a 31-year old man at 3.30am in central London on "suspicion of fraud by abuse of position". The police did not identify the individual who remains in custody, but sources say he is Adoboli. The force has begun an investigation.
The Financial Services Authority, the City regulator, is understood to have been informed. People wanting to work in the City often need to be registered with the FSA, and Adoboli's entry shows he has been on the FSA's register since 2006 at UBS.
The bank would not comment but Adoboli is understood to work in its equity division and on a trading desk called Delta One that was involved with its exchange traded funds (ETF) business. ETFs are complex financial instruments that comprise a basket of investments intended to mimic a market's movements while Delta One traders try to make huge profits on tiny differences between prices.
The Serious Fraud Office may yet become involved after it said it was "seeking discussions" with the bank, the City of London Police and the FSA about how to proceed if fraud needed to be investigated. The SFO had already issued a warning about the "inherent dangers" of ETFs because of their complexity.
It is understood that the entire trading desk, including Adoboli's supervisor John Hughes, has been sent home while the investigation continues.
Louise Cooper, analyst at BGC Partners, said the losses are rumoured to relate to a Swiss franc trade that went wrong after the Swiss National Bank intervened to lower the currency. On 6 September, SNB warned that it would no longer allow one Swiss franc to be worth more than €0.83 equivalent to SFr1.20 to the euro.
"The Swiss currency moved by 8% straight away which is a huge move for FX [foreign exchange] markets. Probably a good guess as to where the loss came from, but at the moment we do not know," she said.
It was not clear, though, whether this was the explanation for what might have gone wrong and UBS did not deviate from a brief statement in which it said it was still trying to get to the bottom of the matter.
On the third anniversary of the collapse of Lehman Brothers, the Swiss bank 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 $2bn. It is possible that this could lead UBS to report a loss for the third quarter of 2011."
It added that "no client positions were affected".
I note that the fingered "rogue trader" is a black man.
I also note that the story is related the revaluation of the Swiss Franc. That event is covered in post #586 here.
Note Denninger's comments there:
Quote:Swiss Central Bank Detonates FX Traders
In what may well be the single largest one-day move in the FX markets ever (I can't find a larger one among "major" currencies with material representation in FX) the Swiss National Bank decided to "peg" (via printing) the CHF to 1.2 Euro.
The result was an essentially-instantaneous move in the CHF against everything of almost 10%.
(Chart at url)
For the uninitiated FX trades are often done with rather extreme amounts of leverage. This sort of move has a very high probability of utterly destroying many traders - anyone on the wrong side of it, basically.
So, UBS was caught highly exposed and highly levered when the Swiss National Bank decided to revalue their currency by 10%.
$2 billion pissed away on the roulette table.
The corporate suits have a brainwave: Gee let's blame a rogue trader.....
15-09-2011, 07:41 PM
Denninger asks a good question in his commentary on this matter today:
Quote:A 9% move in seconds in FX is virtually guaranteed to detonate someone, simply because of the leverage in those instruments - it's monstrous (frequently 50 or even 100:1) and 9% moves of this sort are unprecedented in allegedly "stable" currency crosses. You see that sort of thing in nations like Vietnam when they devalue against a peg - not "mainstream" currencies like the Swissy.
But this begs another question: How is it that we never seem to hear about "unauthorized" trades that make banks money?
In other words, why is it that I'm left with this uncomfortable feeling that these institutions only call the cops (in this case) or the media and PR department (in most cases) to call something "unauthorized" when the bets their people make turn out poorly - yet they're more than happy to pat the guy on the back and hand him a fat bonus when it works out well?
16-09-2011, 01:42 AM
Good questions indeed Karl!
16-09-2011, 02:26 AM
The $2 Billion UBS Incident: Rogue Trader' My Ass
Catherine, News & Commentary on September 15, 2011 at 2:09 pm · No CommentsBy Matt Taibbi
The only thing that differentiates a "rogue" trader like Barings villain Nick Leeson from a Lloyd Blankfein, Dick Fuld, John Thain, or someone like AIG's Joe Cassano, is that those other guys are more senior and their lunatic, catastrophic decisions were authorized (and yes, I know that Cassano wasn't an investment banker, technically but he was in financial services).
In the financial press you're called a "rogue trader" if you're some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you're a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book.
In other words, "rogue traders" are treated like bad accidents and condemned everywhere from the front pages to Ewan McGregor films. But rogue companies are protected at every level of the regulatory structure and continually empowered by dergulatory legislation giving them access to our bank accounts.
Continue reading the article . . .