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UBS raises cost of rogue trading to $2.3bn

UBS has set up a committee led by David Sidwell, independent director on the board to investigate the unauthorised trading

The boss of UBS was under fresh pressure last night after the Swiss bank upped the cost of the alleged rogue trading by Kweku Adoboli – to .3bn (£1.45bn) from bn – and claimed his activities had been hidden by “fictitious” trades.

Oswald Grübel, a veteran banker who was lured out retirement to try to rescue UBS two years ago, told the Swiss weekly Der Sonntag that he had no intention of resigning despite calls to take responsibility for the alleged rogue trading incident.

In attempt to explain the events that led up Adoboli being charged with fraud and false accounting on Friday less than 48 hours after being arrested by City of London Police, the Swiss bank said on Sunday said the losses had been incurred in the past three months through “unauthorised speculative trading” in futures contracts on stock market indices on the S&P 500 on Wall Street, Germay’s Dax index and the Euro Stoxx index, which is based on basket of eurozone stocks.

The bank said Adoboli, who is in custody awaiting a bail hearing on Thursday, had hidden the extent of his trading activities because of “fictitious” trades, using complex financial instruments known as exchange traded funds. EFTs are designed to mimic market movements without holding the actual stocks.

“The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio. However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS’s risk limits,” the bank said.

Adoboli, British educated of Ghanian descent, was arrested at 3.30am on Thursday morning after UBS called in the police at 1.30am after becoming suspicious about the 31 year old’s activities.

The bank, which has set up a special committee to investigate the trading activities and the “control environment”, said: “Following inquiries directed to him by UBS control functions that were reviewing his positions, the trader revealed his unauthorised activity on 14 September”.

The committee is staffed by UBS non-executives. It will be chaired by former banker David Sidwell, who is the senior independent director, as well as Joseph Yam, former chief executive of the Hong Kong Monetary Authority, and Ann Godbehere, who used to be at Northern Rock.

UBS has now closed out all the positions it believes were held by Adoboli after setting up “Project Bronze” led by of its top trader Jason Barron.

One of the three charges faced by Adoboli dates back to 2008 piling more pressure on the bank’s management and adding fuel to calls from Swiss politicians to break up the bank into its high street and investment banking businesses. Thousands of jobs in the City, where it employs 6,000, are at risk from any restructuring of the business which could be announced at an update slated for 17 November.

Grübel has faced calls from Switzerland’s Social Democrats to resign but he was defiant on Sunday. “That is purely political. I am not thinking about stepping down,” he told Der Sonntag. While he admitted responsibility, he said: “But if you ask me whether I feel guilty, I say no.

Two charges claim that Adoboli falsified records of ETFs between October 2008 and December 2009 and then January 2010 and September 2011. A third charge alleges that he committed fraud between January 2011 and September 2011 while senior trader in global synthetic equities. His lawyers at Kingsley Napley – the law firm that advised Nick Leeson, the rogue trader who broke Barings – are yet to issue a statement or enter pleas to the charges.

On Friday, his father, John, told Reuters from Ghana: “I want the world to have an open mind. He should not be sentenced before the trial begins.” The former United Nations worker is hoping to fly to the UK this week.

Accountants Deloitte are expected to run an investigation into what went wrong at UBS for the Financial Services Authority. UBS will be pay Deloitte’s fees. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds