London/Zurich: British police charged UBS trader Kweku Adoboli with fraud on Friday, a day after the Swiss bank said it had lost about $2 billion in unauthorized trades.
UBS was in turmoil as ratings agencies warned lax risk management could prompt downgrades and senior executives cancelled engagements to meet financial regulators.
Adoboli, 31, worked as a director of exchange traded funds at UBS. He will appear at City of London Magistrates court later on Friday, police said.
UK law firm Kingsley Napley has been hired to represent Adoboli. The firm also advised rogue trader Nick Leeson, whose $1.4 billion derivatives losses triggered the collapse of Britain’s Barings Bank in 1995.
Most market speculation has centred on the possibility that the UBS loss resulted from the shock decision by the Swiss central bank last week to impose a cap on the red-hot franc, sending the currency plunging and Swiss shares sharply up.
A UBS spokesman would only say that the losses were made in equities. One UBS trader in London said staff is expecting news of more job cuts in the next two weeks as well as zero bonuses.
“In my team people are scared and are playing low profile. The idea is to stay there and keep your job. In the current situation, it would be difficult to find another job anywhere else,” the person told Reuters on condition of anonymity.
A senior UBS banker said regular meetings and social events involving senior management had been cancelled, which he presumed was because of crisis management or meetings with regulators. “Morale is dreadful...It’s very damaging to our reputation. Equities is one of the businesses where we thought we had got it right,” the banker said.
Analysts said the massive loss, announced on Thursday, was the final nail in the coffin for UBS’ investment bank which has struggled, like others in the industry, against falling markets and tough new regulation as well as the soaring Swiss franc.
Reputational damage from the scandal will force a restructuring many had already thought inevitable and analysts and insiders expect UBS may now have to move before 17 November, when it was expected to make the announcement at an investors’ day in New York.
“I wouldn’t be surprised if we got a preliminary confirmation of a major scaleback soon, even this weekend. The announcement can’t wait until Q3 results or the investor day,” said Matthew Czepliewicz, an analyst at Collins Stewart.
Switzerland’s two biggest political parties, the Swiss People’s Party and the Social Democrats, want UBS to split investment banking from its wealth management arm and pressure for it to take radical action is likely to mount in the wake of the scandal.
Ratings agencies Standard and Poor’s (S&P) and Moody’s put the bank’s credit rating on negative watch, while Fitch said it had put UBS’ viability rating on negative watch.
Fitch said the incident “strengthens the arguments for UBS to down-scale its investment banking unit”, while S&P added: “UBS is currently undertaking a strategic review of the size and shape of the investment bank division and we consider that the trading loss may influence the outcome of this process.”
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. The $2 billion that UBS said had been lost effectively cancelled out the first year of savings from a recently-announced cost-cutting plan involving the loss of 3,500 jobs.
“We believe that yesterday’s event could have personnel consequences on senior management level,” said Vontobel analyst Teresa Nielsen. “The exit from non-core businesses inside the investment bank could be accelerated.”
In the firing line are chief executive Oswald Gruebel, himself a former trader who was brought out of retirement in 2009 to try to turn UBS around, and investment bank boss Carsten Kengeter, the bank’s highest paid employee last year.
Steve Slater, Sophie Sassard, Sarah White and Huw Jones in London, Kwasi Kpodo in Accra and Kevin Lim in Singapore contributed to this story