Investigations into a $2bn (£1.3bn) trading loss at UBS have focused on the use of fictitious hedges that enabled an alleged rogue trader to hide losses for several years.
A major internal inquiry is under way at the Swiss bank's London office to understand how its control systems failed to pick up unauthorised trades by its "Delta One" trading desk as long ago as 2008.
Investigators are understood to be reaching the conclusion already that the fraudulent activity was almost identical to that discovered at French bank Societe Generale three years ago.
"This isn't just spookily similar to Soc Gen. It is exactly the same," said one source with knowledge of the situation.
It is thought a trader was able to circumvent UBS's risk-management systems by creating fictitious trades that made the bank's computer systems believe that the positions taken had been "hedged" to mitigate potential losses when in fact they had not been.
Senior managers across the City have been scrambling to double-check their own systems to make sure they could not have been tampered with in a similar way.
"It looks like real postions that were hedged with fictitious trades. These trades had forward settlement dates so they hadn't failed yet. Everyone is looking at their own controls in this area. Normally there are very strict rules around long settlement contracts," said one manager at a major investment bank.
The Financial Services Authority and the Swiss Financial Market Supervisory Authority have launched their own joint investigation into the trading losses at UBS. One of the "Big Four" accounting firms is expected to be hired to help the regulators with their enquiries.
The review will look at how such a large fraud was able to go undetected and will include a complete assessment of UBS's risk-management systems in its investment bank.
The serious failures already identified at UBS have led major credit agencies to warn that the bank's rating is under threat. Fitch Ratings, Moody's and Standard & Poor's have all put the bank on watch with a view to downgrading its credit rating.
"Apart from damaging its IB [investment banking] franchise, the announced trading loss could also have negative repercussions for UBS's wealth-management activities," said Fitch in a statement, pointing out it took the bank several years to stem the outflows of clients' money. "If this incident unsettles wealth management clients and leads to renewed outflows, this would put significant downward pressure on UBS's viability rating."
UBS has already said it expects to make a loss for the third quarter as a result of the money it lost on the unauthorised trades. Shares in UBS fell nearly 11pc on Thursday with the revelation of the losses, however they rallied on Friday to close up 5.2pc at Sfr10.26.
UBS trader Kweku Adoboli has been charged with two counts of false accounting and one count of fraud, following his arrest at his central London home in the early hours of Thursday by City of London Police. Mr Adoboli was remanded in custody until next Thursday after an appearance at City of London Magistrates' Court. He spoke only to confirm his name, address and date of birth.
UBS declined to comment.
The Financial Services Authority and the Swiss Financial Market Supervisory Authority have launched their own joint investigation into the trading losses at UBS. One of the "Big Four" accounting firms is expected to be hired to help the regulators with their enquiries.
The review will look at how such a large fraud was able to go undetected and will include a complete assessment of UBS's risk-management systems in its investment bank.
The serious failures already identified at UBS have led major credit agencies to warn that the bank's rating is under threat. Fitch Ratings, Moody's and Standard & Poor's have all put the bank on watch with a view to downgrading its credit rating.
"Apart from damaging its IB [investment banking] franchise, the announced trading loss could also have negative repercussions for UBS's wealth-management activities," said Fitch in a statement, pointing out it took the bank several years to stem the outflows of clients' money. "If this incident unsettles wealth management clients and leads to renewed outflows, this would put significant downward pressure on UBS's viability rating."
UBS has already said it expects to make a loss for the third quarter as a result of the money it lost on the unauthorised trades. Shares in UBS fell nearly 11pc on Thursday with the revelation of the losses, however they rallied on Friday to close up 5.2pc at Sfr10.26.
UBS trader Kweku Adoboli has been charged with two counts of false accounting and one count of fraud, following his arrest at his central London home in the early hours of Thursday by City of London Police. Mr Adoboli was remanded in custody until next Thursday after an appearance at City of London Magistrates' Court. He spoke only to confirm his name, address and date of birth.
UBS declined to comment.
No comments:
Post a Comment