Wednesday 7 December 2016

UBS losses climb to €2.3bn after 'fake hedges' discovered by bank

Published 19/09/2011 | 08:20

Estimated losses for UBS have climbed to €2.3bn from €2bn last week after it has been discovered that Kweku Adoboli hid losses behind 'fake hedges' using arcane market instruments.

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Mr. Adoboli, aged 31, hid enormous losses by making fake counter-trades that made it appear that his positions were covered, in tactics similar to those used by Jérôme Kerviel who lost Société Générale €4.9bn in 2008, the bank has revealed .



The Swiss bank announced that the losses had been incurred in "unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures" over the course of three months.



Mr. Adoboli, who was charged with fraud and false accounting last Friday, worked on the bank's 'Delta One' desk in London which usually undertakes trades by buying up positions in one asset class and then offsets this through positions in another asset class.



UBS announced that Mr. Adoboli circumvented the usual procedures and by doing so distorted the true nature of risk.



"The true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF [exchange traded fund] positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS's risk limits," said the bank in an official statement.



The bank's chief executive Oswald Grübel has come under increasing pressure to resign as Mr. Adoboli's activities have come to light but he has refused to step down saying that he did not feel guilty about the losses suffered on his watch.



"If someone acts with criminal intent, you can't do anything," said Mr. Grübel. "That will always exist in our job. If you ask me whether I feel guilty, then I say no."



Mr. Adoboli has had run-ins with the law prior to the present instance, having been accused of criminal activity already back in October 2008 for undertaking similar actions that will net UBS massive losses in the third quarter of this year, albeit on a much smaller scale.



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