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UBS systems under fire as rogue trader blows £1.3bn

Kweku Adoboli was arrested at 3.30am today

A rogue trader at UBS has been arrested after allegedly circumventing systems and controls and losing the bank approximately $2 billion (£1.26 billion).

Kweku Adoboli, a 31-year-old trader in the exchange traded funds business, was arrested at 3.30am in London in connection with unauthorised trading, the Financial Times reported. UBS has warned that the trades could lead it to a quarterly loss.

It is not known if Adoboli operated in the City of London, although UBS hold much of its non-Swiss investment banking business there.

According to his LinkedIn profile, Adoboli is a director in European Equity Trading and Delta1 trading at UBS. He has been employed at the investment bank for around eight years, prior to which he studied computer science and management at the University of Nottingham between, graduating in 2003.

"UBS has discovered a loss due to unauthorised trading by a trader in its investment bank," the company said in a brief statement. "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."

The news has led to questions being raised around the Swiss bank's systems and controls, and reminded observers of Societe Generale's rogue trader Jerome Kerviel, who was convicted of circumventing that bank's warning systems to lose the bank 4.9 billion (£4.3 billion).

"Investment banks normally have systems in place to highlight unusual trading behaviour," said Chris Skinner, chief executive at think-tank Balatro. "It's like a high level version of the analytics systems that catch unusual transactions on your credit card, and stop any more taking place. But they warn much faster."

Skinner said rogue trading problems such as this often meant "either the systems were not up to scratch, or the management, or both".

The situation at UBS could differ greatly from Barings Bank, where in 1995 Nick Leeson's unauthorised trading led to the collapse of the company, he said. That predated the sophistication of standard controls in place this decade, Skinner said, and tracking trades then was "much more manual".

Last month, UBS announced 3,500 job cuts, particularly in its investment banking division, in order to cope with the tough economic climate.

The bank is also being investigated by the US authorities over alleged manipulation of Libor, the rate at which banks lend to each other.

UBS declined to comment on its systems and controls.


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