Rogue trader loses $2 billion, banking giant says

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AppId is over the quota AppId is over the quota GENEVA — Rogue trading has struck again, costing one of Europe's largest banks up to $2 billion and dealing a blow to its reputation.

London police said Thursday they had arrested 31-year-old Kweku Adoboli, a trader at UBS AG, in connection with alleged unauthorized trades that caused a loss of some $2 billion at the bank. UBS declined to confirm his name.

The bank said the trades would likely cause it to report a loss in the third quarter of 2011. "The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion," the bank said in a statement just before the stock market opened.

"It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected," it added.

Worse, it raised concerns among investors about the bank's controls and risk management. Shares of UBS tumbled in European trading.

"No rogue trader works in a vacuum, and UBS's management must have taken its eye off the ball to allow a trader to operate on this scale without sufficient supervision and without the systems to monitor his trades," Simon Morris, a partner at UK law firm CMS Cameron McKenna, told Reuters.

"They, and the shareholders, must now pay the bill for this laxness."

The Financial Times said Adoboli was a trader in the bank's exchange traded funds business in London.The newspaper also reported that Adoboli's boss, John Hughes, may have resigned. There was no confirmation of that and a spokesman for the bank told the FT: "For the time being, we have nothing to add."

The newspaper said Adoboli and Hughes were directors in UBS's Global Synthetic Equities trading desk.

Adoboli's profile on the professional networking site LinkedIn showed he spent the past five years working at UBS's European Equity Trading division after three years as a trade support analyst for the bank, the Associated Press reported. He graduated from England's University of Nottingham in 2003, where he studied computer science and management.

A public records search for Adoboli showed that he lives just off of London's Brick Lane, a busy street of curry houses, bars and vintage fashion shops only a few blocks from UBS's U.K. headquarters, which was cordoned off Thursday.

Reuters said his 1,000 pound ($1,600) a month apartment was once a Jewish soup kitchen. The news agency said a man who identified himself as Adoboli's landlord described him as well-dressed and a good tenant, although he was behind on his rent a couple of times.

"He lived here for about 2-1/2 years. He was a very, very nice guy. I have not got a bad word to say about him. He was not the tidiest person but he was a good tenant," Reuters said Philip Octave told reporters gathered outside the apartment in London. "He was very well spoken, his references all passed and he dressed smartly."

Tax evasion case
Peter Thorne, a London-based equities analyst at Helvea, said the loss was financially manageable for UBS, Switzerland's biggest bank.

But he said it was a blow to the reputation of UBS and its management, which oversaw heavy subprime losses during the financial crisis and an embarrassing U.S. tax evasion case in recent years.

"It is amazing that this is still possible," added ZKB trading analyst Claude Zehnder. "They obviously have a problem with risk management. Even when the amount isn't so high it is once more a loss of confidence that casts UBS in a poor light."

"With this they are losing a lot of credit that they had regained with effort," he said.

Cutting jobs
UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank.

UBS announced last month it is to ax 3,500 jobs to shave $2.3 billion off annual costs as it joins rival investment banks in reversing the post-crisis hiring binge and preparing for a tough few years.

Investment banks worldwide have been hit by slow trading due to the debt problems in the euro zone and United States, as well as regulations aimed at forcing banks to hold more capital to protect them from future shocks after the 2008 global financial crisis.

UBS expects to book a restructuring charge due to the job cuts of some 550 million francs, and around 450 million francs of this will be booked in the second half of the year, with the majority recognized in the third quarter.

UBS isn't the first to be hit by a massive loss allegedly caused by a single rogue trader.

Societe Generale, France's second-largest bank, stunned investors in 2008 when it revealed that one of its staff had lost the bank €4.9 billion ($6.7 billion) through a complex scheme of unauthorized trades.

The trader, Jerome Kerviel, was convicted in October 2010 on charges of forgery, breach of trust and unauthorized computer use for covering up bets worth nearly €50 billion between late 2007 and early 2008. He was also banned for life from working in the financial industry and ordered to pay back the the vast amount he had caused his employer to lose.

His fraud eclipsed that of previous so-called "rogue traders."

One of the most infamous was Nick Leeson, a British trader working for Barings Bank in Singapore.

He made unauthorized futures trades that lost more than $1 billion and led to the vulnerable bank's collapse in 1995.

Leeson served three-and-a-half years of a six-and-a-half year sentence in Singapore.

Msnbc.com staff, Reuters and The Associated Press contributed to this report.

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Huge plans 25,000 cut more jobs banking

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LONDON - HSBC will compete in the 30 000 jobs axe, as it lowers costs and drawbacks from countries such as Russia, Poland and the United States, where it has to fight, the half-year profit said Europe's biggest bank after reporting a rise in surprise.

HSBC which rose shares up to 5 percent first half-year pre-tax profits of $11.5 billion by 3 percent on a year ago were opposed to the average $10.9 billion in a Reuters poll.

The London-based Bank said it had 5000 jobs after restructuring costs in the operations in the United States, Britain, France, Latin America, the Middle East and it would reduce a further 25,000 until end of 2013.

This corresponds to 10 percent of the 296,000 HSBC staff. 110,000 Employees in Europe and North America, the Bank will bear the brunt of the job cuts take.

"It is a large number, but it makes sense, because HSBC the costs are quite high," said Daniel Tabbush, analyst at CLSA in Bangkok, the headcount reduction. "I hope that help achieve these cuts the Bank reduce cost to-income ratio."

Despite strong profits for the Bank, UK's unite beat Union "brutal restructuring".

New CEO Stuart Gulliver will slash annual costs of up to 3.5 billion USD, sell assets and retreat from countries where HSBC sub-scale. New to revive, aim, sharpen its focus on Asia, is a strategy that has criticized for "Plants flags" around the world.

But he said half-year results showed that the rise of a slog than tougher rules bite on all banks will be hard.

"We are not here celebrating at all." This is a long journey, that this is and how difficult it will be us, what. This unfortunately is one of the reasons, why we need to make this job cuts, "said Gulliver reporters with a call to Hong Kong"

Costs rose by 13 percent in the first half of a year before as the number of employees increased and wages rose in Asia, where banks struggle to hire and retain employees. Costs as a part of the turnover were 57.5 percent. Gulliver among 52 percent would like to receive them.

HSBC said the job cuts through natural fluctuation, many would come when its turnover is 10-15 percent per year. It also expected to add 3,000 to 5,000 jobs a year in emerging markets, and added it jobs in Asia, Brazil and Mexico in the first half.

HSBC said on Sunday that it would sell 195 U.S. branches to first Niagara Financial for approximately $1 billion in bar, and close another 13 470 sites, it had.

HSBC intends also, its U.S. portfolio, which has more than $30 billion in assets, to sell a movement is credit card, would share the capital. Capital one financial Corp. and Wells Fargo belong, have said to the bidders. A free could be Barclays.

"We have a number of people in this business interests." If we can get the price, we are looking for, we have a number of options-can we run it, sell it in pieces, we could decide to keep the retail private label cards "Gulliver told reporters."

The geographical spread of the HSBC retail banking retreat are less radical than outlined three months ago.

The Bank wants now to close or sell retail in another 20 countries. In may it had earmarked from 39 countries but has closed only in Russia and Poland.

HSBC is the first UK's big banks to report this week. Competitors are also jobs and shake up business models hard and stricter rules are hurting as the euro-zone debt crisis fixed income trading revenues has taken are.

HSBC the return on equity improved to 12.3 percent in the first half until Gulliver aims of 9.5 percent in 2010 and in the range of 12 to 15 percent. But he said that the first half level would have equated III rules with approximately 10.5 percent under new Basel.

The Bank warned increased regulation could hamper a global economic recovery, already losing momentum, as governments struggle with sovereign debt crises and try to close holes in their budgets.

Potentially radical changes for UK banks, due out that next month could force a distinction between of the domestic retail banking business more job cuts might cause, HSBC warned. But it did not expect to force to move its headquarters from London to HSBC.

HSBC have been strong gains driven by higher than expected sales and a big improvement in bad debt, the 30 percent over the previous year to $5.3 billion, which was lowest half of the year for five years.

This improvement was a 131 percent increase in profits for retail banking and wealth management and supports an increase of 31 percent gain on credit is.

At its investment bank arm, global banking and markets, an earnings fell 12 percent over the previous year. HSBC was hit as rivals by a fall in prices and credit income, especially in Europe.

"they are more or less reassuring figures, but they're still points to concerns about the global economy," said Colin McLean, Managing Director of the SVM asset management, owns the HSBC shares.

Gulliver said that revenues grew strongly in the markets, it is on, but will show subdued growth in Europe and in the United States, where the consumer finance arm is running down.

"We're pretty sure China will manage a soft landing and we are confident, especially in pockets of the real estate market is overheating, which here skillfully in Hong Kong, are treated by the authorities," he said.

Copyright 2011 Thomson Reuters.

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