The name is Kweku Adoboli, and you’ll be hearing a lot more about him. He works – or rather, worked – at UBS, Switzerland’s largest bank. He graduated from the well-regarded University of Nottingham, and moved up at UBS. What did he do? Well, UBS executives say he engaged in unauthorized investment trades, and cost the bank $2 billion! We’re no longer talking in terms of millions, or even hundreds of millions – but billions of dollars – enough to wipe out the bank’s profit for the entire quarter and send its stock price tumbling.
So, presuming the charges prove true, we can add Adoboli’s name to the likes of such infamous “rogue traders” as Jerome Kerviel, who cost Societe Generale about $7 billion; Nicholas Leeson, who lost more than $1 billion, enough to bring down Bearings Bank; and Joseph Jett, who reportedly cost Kidder, Peabody $350 million – a substantial sum back in 1994. They may be among the most well-known, though there were many others. John Rusnak reportedly cost Allfirst Financial $700 million, Yasuo Hamanaka $2.6 billion at Sumitomo, and Toshihide Iguchi over $1 billion at Daiwa – among others.
Adoboli, a director in exchange traded funds working on the bank’s Delta One desk, was arrested in London, where he worked. We can expect information to be forthcoming as to exactly what was done, and how. For now, though, it’s worth noting that, not surprisingly, Adoboli is called a “rogue trader,” indicating that he did this by going outside established protocols – with the unspoken implication that the actions of such a rogue were unavoidable. Well, even without knowing exactly what went wrong, we can surmise that there was something terribly wrong with UBS’ risk management and internal control practices. Certainly the risk of unauthorized trading is well known in the banking industry, and with the amounts of money at risk, one would think that sufficient controls would be firmly in place to prevent or timely detect unauthorized trading that could approach a huge sum, certainly well before a loss reached anything in the neighborhood of a figure like $2 billion! Isn’t it cost-effective to spend a relatively few dollars to avoid losses in the millions or billions? How difficult is it to ensure the right people, processes and technology are in place?
We can only wonder why adequate controls weren’t there – and when and where the next “rogue trader” will surface, which hopefully will be before serious damage has already been done.