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View Full Version : The Kweku Adoboli Saga



Quaiqu Ananse
15th September 2011, 11:56 AM
UBS trader arrested over 'rogue deals'

UBS shares opened sharply lower after the announcement

Police in London have arrested a 31-year-old man in connection with allegations of unauthorised trading which has cost Swiss banking group UBS an estimated $2bn (£1.3bn).

He was detained in the early hours of Thursday and remains in custody.

UBS shares fell 8% after it announced it was investigating rogue trades which would mean the bank making a loss for the third quarter of 2011.

The Swiss bank said no customer accounts were affected.

A spokesman for City of London Police, which is responsible for the city's financial district, said: "We can confirm we arrested a 31-year-old man at 3:30am on suspicion of fraud by abuse of position."

In a letter to its 65,000 staff, UBS said: "The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2bn.

"It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected.

"While the news is distressing, it will not change the fundamental strength of our firm.

"We urge you to stay focused on your clients, who are counting on you to guide them through these uncertain times," the bank said.

“All the clever systems that the banks now have still cannot stop a determined individual ”Chris Roebuck.Visiting professor, Cass Business School

ZKB trading analyst Claude Zehnder said the news would damage confidence in UBS. "They obviously have a problem with risk management.

"With this they are losing a lot of credit that they had regained with effort."

UBS was rescued by the Swiss state in 2008 following huge losses on toxic assets held by its investment bank.

It then became embroiled in a serious tax evasion dispute with US authorities and was forced to hand over 300 client names and pay a $780m fine. There was then a second case in which it agreed to hand over data on 4,450 American clients.

UBS declined to say in which department, or country, the rogue trader operated. However, there is already speculation that the losses may have occurred in foreign exchange trades.

Earlier this month, the Swiss Central Bank shocked the markets by capping the franc against the euro at 1.20 francs. The move sent the franc-euro exchange rate up 10%, and it is rumoured that some traders lost money.


Casino banking

The UBS news has echoes of other rogue trades, including at Societe Generale, where former trader Jerome Kerviel was arrested in 2008 over unauthorised trades which cost the bank 4.9bn euros.

That topped the losses involved in the infamous case in 1995, which saw Briton Nick Leeson cause the collapse of Barings bank after costing the group £800m.

Banks such as UBS have tightened their compliance and rules, but this latest breach "is a staggering demonstration that all the clever systems that the banks now have still cannot stop a determined individual getting round them if they want to," said professor Chris Roebuck.

Mr Roebuck, visiting professor at Cass Business School, said it would fuel the debate over "casino" banking.

"We will see how the good shareholders of UBS react to yet another investment banking debacle as they ponder their mountain views, probably wishing that the investment bank was caught in the next avalanche and swept away," he said.

The UBS announcement came on the day that the lower house of the Swiss parliament was due to discuss the country's banking laws to reduce the risks from firms that are considered "too big to fail".

Last month the bank announced 3,500 jobs cuts. Of the 65,000 staff worldwide about 6,000 are in the UK, with the bulk of UBS's investment banking operations based in London and New York.


Source: http://www.bbc.co.uk/news/business-14927432

Quaiqu Ananse
15th September 2011, 12:27 PM
I still remain of the firm belief that the banks should not have been bailed out... Those that would collapse should have been allowed to collapse. This nonsense will never end.

Pope Bitterz D'Alomo
15th September 2011, 12:50 PM
I suspect the rogue trader to have been operating in the US or in Asia. We are up for another melt down in the US banking sector very soon.I SEE IT COMING.
...and i agree with you QUAIQU,the bail out was uncalled for.It's more like handing over your credit card to a shopaholic and keeping your fingers crossed that they don't max it out,knowing very well the history of the shopaholic.

Fashion Yaa
15th September 2011, 01:56 PM
Alls i want them to do is follow the money¡ did it touch the shores of Gh¿ what schools did Kweku Adoboli attend(funny ho i dont see his name but its all over BBCMONEY as 31yr old K.A)

CuTiEbABy
15th September 2011, 02:53 PM
Alls i want them to do is follow the money¡ did it touch the shores of Gh¿ what schools did Kweku Adoboli attend(funny ho i dont see his name but its all over BBCMONEY as 31yr old K.A)

hahahhaaa Yaa are you concerned about what the money was used for or you just want to know if its stashed in Ghana somewhere...;)

Quaiqu Ananse
15th September 2011, 03:31 PM
Meet Kweku Adoboli

At 3.30am this morning, a man was arrested by City of London Police in connection with an unauthorised trade that Swiss bank UBS said had cost it around $2bn. The trader is believed to be London-based Kweku Adoboli.

Adoboli, of Ghanaian decent, joined UBS as a trainee in March 2006, according to the FSA Register. He had been a member of the Delta One team under John Hughes and worked on providing synthetic assets and derivatives for ETF providers.

He and Hughes are citied as the main market maker contacts at UBS on the websites of a number of ETF providers.

In June, Nick Pink, head of global equities in Europe, the Middle Easta and Africa at UBS, said: “We want to expand the synthetic business, which is is closely aligned with our strengths in prime brokerage, cash and research business.”

Like Jérôme Kerviel, who was convicted by French courts for several financial crimes at Societe Generale in 2008, Adoboli had previously had experience in UBS's back office as a trade support analyst, which would potentially have given him the knowledge of how to conceal trades.

A source close to UBS said Adoboli was a highly-rated trader on the bank’s Delta One desk and dealt with its roster of high-profile London fund clients.

Several market participants told Financial News this morning that Adoboli may have mis-hedged his exposure to the Swiss franc and attempted to hide it from his team when the market moved against him by overcompensating with a hedge in the opposite direction. Any short position on Swiss franc volatility would have suffered after volatilities rose again earlier this week. UBS claims the third largest share in global foreign exchange trading, and is the biggest trader in the euro/franc pairing.

Outside Adoboli’s former home in Aldgate – a large loft space that he rented for £1,000 a week – Philip Otabe, Adoboli’s landlord until four months ago, said he was “very, very polite –a salesman sort of chap”.

“I wouldn’t say he was the tidiest of people though”, Otabe added. “He did get behind a couple of times on the rent, but he always made a payment in due course anyway, so I never had any reason to doubt him”.

There is a Twitter account that was set up in his name in July, but this appears to have been hacked. His followers include several bankers and hedge fund blog site Zerohedge. There is also a fake Twitter account created this morning in Adoboli's name.

Before joining the Swiss Bank, Adoboli attended Nottingham University. In October 2001 he was featured in a Sky News report about Freshers Week of which he was coordinator.

He told Sky that the first week of university was hectic when it came to socialising: "It's an amazing opportunity for hundreds of student to meet at a jamboree of parties," Adoboli said.

"By the end of the week many of the first relationships will have been established and most of them will have ended."

Before university, from 1992 to 1998, he attended a Quaker academy in West Yorkshire, the Ackworth school, of which he is listed as part of the alumni network. The school was founded in 1779 near Pontefract and offers day and boarding options to students.

Hughes went to Warwick University, joining UBS as a trainee in 2005, according to the FSA register. He is a popular figure among the UBS’s London investment banking teams, according to people familiar with the matter.

Adoboli and Hughes were unreachable for comment this morning and UBS declined to comment.

Source: http://www.efinancialnews.com/story/2011-09-15/kweku-adoboli?mod=mostemailed-TT

CuTiEbABy
15th September 2011, 03:41 PM
Adoboli, of Ghanaian decent, joined UBS as a trainee in March 2006, according to the FSA Register.

Is he a Ghanaian or claiming to be a Ghanaian?

Quaiqu Ananse
15th September 2011, 03:51 PM
Is he a Ghanaian or claiming to be a Ghanaian?

I would have so loved to find that out too.
I couldn't get any verification on that .
His LinkedIn and Facebook profiles appear to have been taken down.

Fashion Yaa
15th September 2011, 04:50 PM
hahahhaaa Yaa are you concerned about what the money was used for or you just want to know if its stashed in Ghana somewhere...;)gotta admit i just wanna know how his peoples was living....i mean two billion can last at least five generations in Gh......is the money retrivable if it is indeed spread amongst his family<<<<<<<<<my rumour mill

Fashion Yaa
15th September 2011, 04:53 PM
Is he a Ghanaian or claiming to be a Ghanaian?hm the more i think about it he had help seciring this Ghana name.....Ghanaweb is not reporting on him so i dount he is Gh blood hehehe Gweb is my Gossip on Diasporans

Pope Bitterz D'Alomo
15th September 2011, 10:42 PM
http://news.sky.com/sky-news/content/StaticFile/jpg/2011/Sep/Week3/16070344.jpg
Adoboli was described as 'very popular' with colleagues (Pic: Facebook)

An acquaintance described the former University of Nottingham student as a "nice, open guy with lots of friends, very popular with his colleagues and personal friends".
She told Sky News Online: "I would have thought many of his colleagues and friends are very shocked at the news."
A former landlord said he was "a very nice guy".
Philip Octave, who rented a flat in Shoreditch, east London, to Adoboli for £1,000-a-week until he moved out four months ago, said: "I haven't got a bad word to say about him.Adoboli, whose parents are from Ghana, worked in the European equity trading division of the group and was based in London. He has worked at UBS for at least five years.

CuTiEbABy
16th September 2011, 02:54 AM
hm the more i think about it he had help seciring this Ghana name.....Ghanaweb is not reporting on him so i dount he is Gh blood hehehe Gweb is my Gossip on Diasporans

hahhaaa sis I see...you get all your scoop from there....lol

Pope Bitterz D'Alomo
16th September 2011, 04:51 PM
Trader charged after $2B loss for UBS
Police charged a bank trader with fraud Friday, a day after he was arrested in connection with the discovery of an estimated $2 billion worth of unauthorized deals at Swiss banking giant UBS.
City of London Police said Kwaku Adoboli would appear in court later Friday on charges of fraud by abuse of position and false accounting.
The 31-year-old was arrested in an early morning operation in London's banking district hours before the loss was announced on Thursday, police said. His first name has been spelled elsewhere as Kweku.
The Financial Services Authority, the Serious Fraud Office and Crown Prosecution Service are also involved in investigating the case, the City of London Police statement said.
The bank declined to comment on the arrest. Shares in UBS rose slightly in early trading in Europe Friday after falling around 10% the day before.
The bank is large enough to take a $2 billion hit, experts said, but the size of the loss it reported is almost unprecedented.
Credit rating agency Moody's has said it is looking at UBS for a possible downgrade.

Its review of UBS will focus on "ongoing weaknesses in the group's risk management and controls" as revealed by the reported loss, Moody's said in a statement.
Moody's downgraded two French banks earlier this week amid questions over their exposure to debt.
News of the alleged rogue trader came amid pronounced economic anxiety in Europe. Markets there have been in turmoil in recent weeks as concern has mounted that Greece might default on its huge debt, sending shock waves through the 17-nation eurozone and further afield.
U.S. Treasury Secretary Timothy Geithner is attending a meeting of Europe's Economic and Financial Affairs Council in Wroclaw, Poland, on Friday, at which questions around Greek debt and financial stability in the eurozone are being discussed.
Finance ministers for the European Union member states, central bank presidents and representatives of other major financial bodies are also present. The conference comes ahead of G20 and IMF meetings later this month.
On Thursday -- even as news was circulating of the incident at UBS -- came word that the Federal Reserve and four other powerful central banks announced they were throwing a lifeline to Europe's struggling banks.
The European Central Bank, along with the Fed, the Bank of England, the Bank of Japan and the Swiss National Bank, said three U.S. dollar auctions would be held by the end of the year to help out European banks that need the currency to fund loans and repay debt.
European banks have seen U.S. dollars flow out as U.S. financial institutions and money market accounts scale back exposure to European banks, amid fears over those institutions' exposure to debt held by Greece and other European nations.
Lex van Dam, a former trader who is now a partner at Hampstead Capital in London, said a bank's risk management division is supposed to examine a trader's activities.
UBS is not likely to collapse, but the scandal could prompt the bank to split its investment bank into a separate company, he added.
UBS said no client positions were affected by the loss, which is still being investigated.
But the "unauthorized trading by a trader in its investment bank" could cause UBS to post a loss in the third quarter of this year, it said.
The loss would potentially be among the largest costs ever to a bank in unauthorized trading.
Rogue trader Jerome Kerviel cost his French bank, Societe Generale, almost $6 billion, and was sentenced to three years in prison last year.
Yasuo Hamanaka cost Sumitomo Corporation $2.6 billion in the global copper market, and was sent to prison for eight years over fraud and forgery in 1997.
Nick Leeson, the subject of the Ewan McGregor movie "Rogue Trader," lost about $1.3 billion for his bank, Barings, in 1995, forcing it to close.
UBS made a pre-tax profit of about $1.9 billion in the second quarter of this year, it announced in July, down from about $2.5 billion the quarter before that.

CNN

Quaiqu Ananse
16th September 2011, 05:57 PM
http://news.sky.com/sky-news/content/StaticFile/jpg/2011/Sep/Week3/16070344.jpg
Adoboli was described as 'very popular' with colleagues (Pic: Facebook)

An acquaintance described the former University of Nottingham student as a "nice, open guy with lots of friends, very popular with his colleagues and personal friends".
She told Sky News Online: "I would have thought many of his colleagues and friends are very shocked at the news."
A former landlord said he was "a very nice guy".
Philip Octave, who rented a flat in Shoreditch, east London, to Adoboli for £1,000-a-week until he moved out four months ago, said: "I haven't got a bad word to say about him.Adoboli, whose parents are from Ghana, worked in the European equity trading division of the group and was based in London. He has worked at UBS for at least five years.

Massa... I salute... You get filla... Where did you pull this one up from?... Did you get confirmation on whether he holds Ghanaian nationality or not?...




On Thursday -- even as news was circulating of the incident at UBS -- came word that the Federal Reserve and four other powerful central banks announced they were throwing a lifeline to Europe's struggling banks.
The European Central Bank, along with the Fed, the Bank of England, the Bank of Japan and the Swiss National Bank, said three U.S. dollar auctions would be held by the end of the year to help out European banks that need the currency to fund loans and repay debt.
CNN

This is part I never seem to be able to wrap my head around...
Why would you want to continue to prop-up and sink money into banks that are failing?
Common sense would tell you to let them sink and let new, stronger and better banks with better financial systems and controls emerge.
This will bring an total overhaul to the system...
Yes... Investors will loose money but in any recession this is always the case and the world always come out a better place because of it.
If anyone understand the economics of it, please help us understand...
Because to my mind it's just utter nonsense... SMH.

Quaiqu Ananse
16th September 2011, 07:36 PM
From Ghana to the City: the rise of a trader who had it all
From his roots in the Ghanaian industrial port of Tema to a £1,000-a-week loft apartment in the City of London, Kweku Adoboli was the embodiment of global social mobility as his career went from strength to strength.

As a trader at the Swiss investment bank UBS, the 31 year-old was earning a six-figure salary and spent his spare time travelling the world, building up his collection of Argentine boutique wines.

But his incredible rise came to an abrupt halt at 3.30am yesterday when he was arrested by detectives who suspect him of carrying out the largest single fraud by a London-based trader.

Mr Adoboli stands accused of covering up a loss of £1.3 billion, dwarfing the £827 million lost by Nick Leeson when he brought down Barings Bank in 1995.

Until now, Mr Adoboli’s life had appeared to be one long success story, starting in Tema, near the Ghanaian capital Accra, where thousands survive on a minimum wage of £1.28 per day.

As the son of a Ghanaian United Nations worker, Mr Adoboli was born into a life of privilege, travelling extensively as a child and spending time in Israel, Syria and Iraq, where he is understood to have attended international schools.

His journey towards the City began when he was sent to boarding school in England, making such an impression at the £19,635-per-year Ackworth School in Pontefract, West Yorks, that he was made deputy head boy. Former classmates described him as “fun-loving” and “hard-working” and recalled him being a skilful hockey player.

Kathryn Bell, the head teacher at the Quaker school, said he had been “an able student who made a very positive contribution to the school community” before he left in 1998.

From there he went on to study for a BSc in Computing and Business Management at Nottingham University, where in 2000 he was elected as Communications Officer for the Students’ Union, and also took charge of coordinating Freshers’ Week.

“He was an absolute whizz with computers,” said one contemporary. “He was very well-known around the university because he was very sociable, and he told us his father was a diplomat who worked at the United Nations.”

Mr Adoboli’s computing skills earned him a graduate job at UBS, where he started in a back office before being transferred to a trading desk.

“People were a little surprised when he turned up on the trading desk because he didn’t have a trading background,” said one former colleague. Nevertheless, after starting his trading career in 2006, he proved sufficiently adept to be moved on to the Delta One trading desk, coincidentally the type of operation on which Jérôme Kerviel, the Société Générale rogue trader, also worked.

Outwardly, Mr Adoboli seemed to be thriving. Until four months ago, he lived in a 3,000 sq ft open-plan apartment in the City, paying £1,000 per week rent.

Philip Octave, his then landlord, said: “He was a very nice guy. He was very polite. He would speak to anyone. He had a girlfriend who was a nurse, and dressed very smartly. I can’t believe what’s happening. I can’t believe it is him.”

Mr Octave said the apartment, with limestone floors and whitewashed walls, was big enough to make a 10-bedroom flat, and compared it to an art gallery.

He said his former tenant used to talk about his African background and made regular trips back to Ghana to see his parents and extended family.

Mr Adoboli had recently read a book called The Wolf of Wall Street, by former trader Jordan Belfort, who earned tens of millions before being imprisoned for defrauding investors of $200 million in the 1990s.

William Pitt, 39, a neighbour of Mr Adoboli and chief executive of a venture capital fund, said: “I knew he worked for UBS specialising in currencies.

“We had a chat recently about how tough the markets were and he said it was a bloody s--- fight, and we both agreed how tough it was at the moment.

“I would see him a couple of nights a week. He was coming, I was going, and vice versa.”

“We didn’t talk about money, it is an unspoken rule that you don’t speak about figures so I wouldn’t ask him or expect him to tell me, you don’t really unless you are really close or in the same firm.

He said Mr Adoboli had lent him his copy of The Wolf of Wall Street and “he said it was a great read”.

Mr Pitt, who is from Melbourne, said his neighbour would often bring “pretty girls” back to the apartment.

“He had lots of attractive girls coming by. He lived alone. He had friends around all the time. I know a pretty girl when I see one and he had pretty girls over all the time.

“I have heard talk about a girlfriend but I never saw a girlfriend. I didn’t see his girlfriend and he didn’t mention one. No one else lived there.”

“He was a young, successful guy, moving on up, having fun and making me jealous. He was a really relaxed, happy guy.”

Another former neighbour said Mr Adoboli was a party animal who would hold all-night raves. The neighbour said the 31-year-old would host huge parties at the Spitalfields flat about once a month.

He said: “I would complain about his music. I would sometimes scream out in the middle of the night turn down your ------- music. He had the proper set up, he would get DJs for his parties to play house music — they were really extravagant affairs.”

“There would be 50-100 people with some even spilling out on to the street. I remember there was one party which went on right through to 10am the following morning. But he did seem nice, once when I complained about the music he sent me back with a bottle of champagne to apologise.”

In his entry on the social networking website Facebook, Mr Adoboli lists his interests as travelling, mountain biking and football and wrote about his interest in Argentinian wine.

But at some point over the past year, it is alleged, things started to go wrong at Mr Adoboli’s trading desk. It remains unclear by exactly what means he is alleged to have lost £1.3 billion.

One theory is that the bank’s losses were related to the devaluation of the Swiss Franc on Sep 6.

If the bank, or one of its employees, was trading in foreign currency the sudden devaluation could have had a disastrous impact on any trading that relied on a higher valuation.

In recent months Mr Adoboli had been working exceptionally long hours, according to neighbours at the apartment complex in Whitechapel, east London, to which he recently moved.

One resident said: “We never saw him as he was always working at all hours of the night.”

The first sign of trouble came when Mr Adoboli updated his Facebook page to say: “I need a miracle.”

None of his colleagues, however, had an inkling that he was about to be arrested for what is potentially the City’s fraud of the century.

Source: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8767097/From-Ghana-to-the-City-the-rise-of-a-trader-who-had-it-all.html

Fashion Yaa
16th September 2011, 07:58 PM
Hm im not sure that he had all that money i mean he missed two momths rent and still has his family living in Tema.....ive learnt the type of trading he does is gambling so it could very well be that the money is lost to a more lucky investor just like doing lotto.

This is the stage that he will learn who his true friends are....'white collar crime'......i actually met a elderly Ghanaman here in Cali who went to Fed Pen for such a crime back in the late 70's to 80's he came out deciding not to trust any Ghanaian n chooses to only deal with Mexicans ......his wife is Senegales

Quaiqu Ananse
16th September 2011, 11:45 PM
Hm im not sure that he had all that money i mean he missed two momths rent and still has his family living in Tema.....ive learnt the type of trading he does is gambling so it could very well be that the money is lost to a more lucky investor just like doing lotto.



You are right, Yaa.
He probably did not stash the fund away but just lost it in trading.


UBS loss 'came from lots of small trades over months'
Kweku Adoboli carried out vast numbers of small transactions over many months, as he accumulated investments that would ultimately lead to $2bn or £1.3bn in losses for UBS. According to a banker with a close knowledge of Mr Adoboli's alleged activities, one reason why UBS failed to identify the unauthorised deals till Wednesday was that Mr Adoboli had a close knowledge of UBS's back office or administration procedures: he previously worked in the back office before becoming a trader. "His knowledge of the back office apparently helped him to disguise what he was doing," the banker said. He added: "naturally there are concerns about why it took UBS so long to identify what now looks like a long history of rogue trades. But when a trader sets out to systematically mislead his employer, as seems to have happened in this case, the best monitoring systems in the world won't pick up what happened."

http://www.bbc.co.uk/news/business-14944242

Pope Bitterz D'Alomo
17th September 2011, 12:03 AM
Massa... I salute... You get filla... Where did you pull this one up from?... Did you get confirmation on whether he holds Ghanaian nationality or not?...



This is part I never seem to be able to wrap my head around...
Why would you want to continue to prop-up and sink money into banks that are failing?
Common sense would tell you to let them sink and let new, stronger and better banks with better financial systems and controls emerge.
This will bring an total overhaul to the system...
Yes... Investors will loose money but in any recession this is always the case and the world always come out a better place because of it.
If anyone understand the economics of it, please help us understand...
Because to my mind it's just utter nonsense... SMH.

A buddy e-mailed me that piece... apparently he was born in Ghana. He probably scored huge profit a couple of times and thought he could up his ante then poof, his luck run out.

Pope Bitterz D'Alomo
17th September 2011, 12:05 AM
Hm im not sure that he had all that money i mean he missed two momths rent and still has his family living in Tema.....ive learnt the type of trading he does is gambling so it could very well be that the money is lost to a more lucky investor just like doing lotto.

This is the stage that he will learn who his true friends are....'white collar crime'......i actually met a elderly Ghanaman here in Cali who went to Fed Pen for such a crime back in the late 70's to 80's he came out

deciding not to trust any Ghanaian n chooses to only deal with Mexicans ......his wife is Senegales

Good luck to him lmao

Pope Bitterz D'Alomo
17th September 2011, 01:41 AM
http://74.54.19.227/GHP/img/pics/66132952.jpg

Fashion Yaa
17th September 2011, 01:51 AM
I can only asume his smiles mean he is about to roll some heads.....6k ppl in the UK are about to lose work cuz of a common practice hmm what kina byluck be dis! Or maybe he is smiling cuz he has mentally prepared himself for jail or deportation

Quaiqu Ananse
17th September 2011, 02:38 PM
I can only asume his smiles mean he is about to roll some heads.....6k ppl in the UK are about to lose work cuz of a common practice hmm what kina byluck be dis! Or maybe he is smiling cuz he has mentally prepared himself for jail or deportation

Funny thing is, I still don't blame him or all the other rogue traders that are out there... and trust me there are still lots of them out there... These financial institutions encourage them rewarding them when they make profits and covering up for them when they make losses... Occasionally they'll just make scape goats of a few of them... I blame the system which allows them to do this over and over again... and then gives them back tax payers money to do it all over again.

Quaiqu Ananse
17th September 2011, 02:51 PM
The $2 Billion UBS Incident: 'Rogue Trader' My Ass

The news that a "rogue trader" (I hate that term – more on that in a moment) has soaked the Swiss banking giant UBS for $2 billion has rocked the international financial community and threatened to drive a stake through any chance Europe had of averting economic disaster. There is much hand-wringing in the financial press today as the UBS incident has reminded the whole world that all of the banks were almost certainly lying their asses off over the last three years, when they all pledged to pull back from risky prop trading. Here’s how the WSJ put it:

The Swiss banking giant has been struggling to rebuild trust after running up vast losses in the original financial crisis. Under Chief Executive Oswald Grubel, the bank claimed to have put in place new risk management practices, pulled back from proprietary trading and focused on a low-risk client-driven model.

All the troubled banks, remember, made similar promises in the wake of the financial crisis. In fact, some of them used the exact same language. Some will recall Goldman’s executive summary from earlier this year in which the bank pledged to respond to a "challenging period" in its history by making changes.

"We reviewed the governance, standards and practices of certain of our firmwide operating committees," the bank wrote, "to ensure their focus on client service, business standards and practices and reputational risk management."

But the reality is, the brains of investment bankers by nature are not wired for "client-based" thinking. This is the reason why the Glass-Steagall Act, which kept investment banks and commercial banks separate, was originally passed back in 1933: it just defies common sense to have professional gamblers in charge of stewarding commercial bank accounts.

Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking – historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there – turns them on.

In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way. If you’re not a person who can doze through a two-hour foot massage while your client (which might be your own bank) is losing ten thousand dollars a minute on some exotic trade you’ve cooked up, then you won’t make it on today’s Wall Street.

Nonetheless, thanks to the Gramm-Leach-Bliley Act passed in 1998 with the help of Bob Rubin, Larry Summers, Bill Clinton, Alan Greenspan, Phil Gramm and a host of other short-sighted politicians, we now have a situation where trillions in federally-insured commercial bank deposits have been wedded at the end of a shotgun to exactly such career investment bankers from places like Salomon Brothers (now part of Citi), Merrill Lynch (Bank of America), Bear Stearns (Chase), and so on.

These marriages have been a disaster. The influx of i-banking types into the once-boring worlds of commercial bank accounts, home mortgages, and consumer credit has helped turn every part of the financial universe into a casino. That’s why I can’t stand the term "rogue trader," which is always tossed out there when some investment-banker ------- loses a billion dollars betting with someone else’s money.

They’re not "rogue" for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys "rogue traders" when they make a billion dollars gambling.

The only thing that differentiates a "rogue" trader like Barings villain Nick Leeson from a Lloyd Blankfein, ---- Fuld, John Thain, or someone like AIG’s Joe Cassano, is that those other guys are more senior and their lunatic, catastrophic decisions were authorized (and yes, I know that Cassano wasn’t an investment banker, technically – but he was in financial services).

In the financial press you're called a "rogue trader" if you're some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you're a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book.

In other words, "rogue traders" are treated like bad accidents and condemned everywhere from the front pages to Ewan McGregor films. But rogue companies are protected at every level of the regulatory structure and continually empowered by dergulatory legislation giving them access to our bank accounts.

There is a movement in the UK for a thing called “ringfencing” that would separate investment bankers from commercial bankers. Some people think this UBS incident will aid that movement, even though UBS can apparently absorb the loss without necessitating a bailout or endangering client accounts.

The U.S. missed its own chance for ringfencing when a proposal for a full repeal of Gramm-Leach-Bliley was routed during the Dodd-Frank negotiations.

That means we’re probably stuck here in the states with companies like Bank of America, JP Morgan Chase and Citigroup, giant commercial banks in charge of stewarding trillions in client bank accounts and consumer credit accounts who also behave like turbocharged gamblers via their investment banking arms.

Sooner or later, this is going to blow up in our faces, and it won't be one lower-level guy with a $2 billion loss we'll be swallowing. It'll be the CEO of another rogue firm like Lehman Brothers, and it'll cost us trillions, not billions.


Source: http://www.rollingstone.com/politics/blogs/taibblog/the-2-billion-ubs-incident-rogue-trader-my-ass-20110915?print=true

Pope Bitterz D'Alomo
17th September 2011, 02:56 PM
Why there hasn't been measures in place to at least over see
the inside activities of these financial institutions up till now still beats me. Like Gordon Gekko said in WALL STREET
Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep, and sheep get slaughtered.

Pope Bitterz D'Alomo
19th September 2011, 06:21 AM
The U.S. missed its own chance for ringfencing when a proposal for a full repeal of Gramm-Leach-Bliley was routed during the Dodd-Frank negotiations.

That means we’re probably stuck here in the states with companies like Bank of America, JP Morgan Chase and Citigroup, giant commercial banks in charge of stewarding trillions in client bank accounts and consumer credit accounts who also behave like turbocharged gamblers via their investment banking arms.

Sooner or later, this is going to blow up in our faces, and it won't be one lower-level guy with a $2 billion loss we'll be swallowing. It'll be the CEO of another rogue firm like Lehman Brothers, and it'll cost us trillions, not billions.

So true. this will be worse than an oil spill.

Quaiqu Ananse
19th September 2011, 09:40 PM
The rogue UBS trader arrested last week raises questions about the bank's risk management practices. But the profession is so close to gambling that all traders walk a very fine line.

By Shelley DuBois, writer-reporter

For a trader playing the market, the temptation to "go rogue" is huge. Authorized trading is like a complicated, legal slot machine and requires the assumption of major risk on a regular basis. So, then, how do you fill your company with people who have the confidence to play the market but can also fight the temptation to throw good money after a bad trade?

The latest example of this dilemma comes from UBS trader Kweku Adoboli, who was arrested on September 15 and is now facing charges of fraud and false accounting. UBS (UBS) says he covered up unauthorized trades over the past three months that lost the company $2.3 billion.

This is particularly awkward for UBS as the bank recently overhauled its risk management system. Granted, preventing rogue trading is no easy task, "Nobody who's in this game would be foolish enough to believe that it couldn't happen to them," says David Johnson, managing director in consultancy firm Protiviti's Houston office.

Without knowing the details of UBS' security measures, there are a couple of best practices banks should follow. Companies need to have security systems that flag suspicious trades, and on top of that, managers need to review trading activity. Every year or so, the company needs to do thorough internal audits to see which parts of their business may be vulnerable to unauthorized trading. Companies can even record conversations that traders have from their desk phones.
But beyond operational security, preventing rogue trading is a question of hiring and corporate culture. Managers must create an environment that counteracts the powerful psychological forces that encourage smart traders to make bad decisions that put the company at risk.

First off, the job selects for employees who believe they can beat the market. To be a good trader, you almost have to create a kind of mythology around your ability, says Johnson, "People who are in that business tend to be willing to place large bets, they're very comfortable with that," he says. The environment is high-pressure and competitive.

Besides, it's a fair bet that managers do not root out unauthorized trades unless they lose the company money. "You haven't heard of financial scandals where a rogue trader has earned $2 billion extra for the company," says Barry Staw, a professor of leadership and communication at the University of California, Berkeley. Traders who have bet correctly on unauthorized trades are inadvertently rewarded, making the behavior tough to break.

But perhaps the biggest mental glitch at work is the temptation to make a series of irrational decisions after losing money. Almost everyone falls prey to this phenomenon, according to Staw's research; it's called "escalation of commitment."

In trading, this means that even though trades are discrete events, it is near impossible for people not to factor a previous loss into their current decisions. The result is that when we want to dig ourselves out of a hole, we make decisions that a third-party observer could clearly identify as bad ones.

At a certain point, people hit a threshold where irrational choices actually become rational. Say a trader is losing money, and he begins to make riskier and riskier bets. He realizes that his career is in jeopardy and he might even be arrested. The penalty may not change much, for the trader, whether he has lost $1 billion or $2 billion. If that's the case, once he crosses that threshold, it is rational to go double or nothing in an attempt to get out of the hole. Although there's still plenty of money at stake for the company, the trader likely has nothing more to lose at this stage. And people operating in crisis mode tend to look out for their own skin rather than the common good.

It's still unclear what happened with Adoboli, but in general, it is difficult to reverse this pattern of risky betting once a person feels trapped. One of the best ways to prevent this behavior doesn't rely on security software but rather the culture in an office. Even though traders operate in such a high-pressure environment, they need to feel like they can talk to their managers about problems, insecurities about trades they might have done wrong, and near misses.

One of the risks of raising the penalty for mistakes is that traders may feel less inclined to come forward with small errors that could be learning opportunities, Staw says. Then the company only sees the huge ones that are too big to hide.

Investing is so prone to this kind of behavior that employers need to put all systems of checks and balances in place: extremely thorough hiring practices, an open culture of communication, strong technology to catch suspicious trades, and hyper vigilant human oversight.

As one of David Johnson's clients once told him, "You have to hope that your traders are the finest moral people around. Then, you set up your policies and your rules as if they're all lying, cheating crooks."



Source: http://management.fortune.cnn.com/2011/09/19/the-catch-22-of-catching-a-rogue-trader/?hpt=ibu_c2

BBoy T
20th September 2011, 11:16 PM
Funny thing is, I still don't blame him or all the other rogue traders that are out there... and trust me there are still lots of them out there... These financial institutions encourage them rewarding them when they make profits and covering up for them when they make losses... Occasionally they'll just make scape goats of a few of them... I blame the system which allows them to do this over and over again... and then gives them back tax payers money to do it all over again.

I agree with you. I see it as the big fish throwing the small fry under the bus.

Pope Bitterz D'Alomo
22nd September 2011, 10:41 PM
LONDON (Reuters) - The Quaker Christian school that UBS trader Kweku Adoboli attended as a teenager made quiet periods of reflection a daily part of student life.

There will have been plenty of time for the Ghanaian to continue the practice since his arrest a week ago on multiple charges of fraud.

"(Adoboli) is sorry beyond words for what happened," his lawyer Patrick Gibbs told a London court on Thursday.

"He stands now appalled at the scale of the consequences of his disastrous miscalculations."

Adoboli, who has been charged with fraud and false accounting dating back to 2008 that UBS says cost it $2.3 billion, had worked at the Swiss bank since 2006, initially in a trade support role.

His case inevitably has sparked comparisons to that of Societe Generale's Jerome Kerviel, who racked up a $6.7 billion loss in unauthorised deals in 2008.

Like Kerviel, who also began his investment banking career in a back office role, Adoboli worked with so-called Delta One products, derivatives which closely track the underlying securities and give the holder an easy way to gain exposure to several asset classes.

According to UBS, the baby-faced 31-year-old concealed "unauthorised speculative trading in various S&P 500, DAX, and EuroStoxx index futures" by creating fictitious hedging positions in internal systems.

Quaiqu Ananse
7th October 2011, 09:16 AM
The dangers inherent in the world of securities and derivatives trading have risen dramatically. This new threat is a result of the advent of high-frequency, ‘black box’ trading strategies, and fully automated, low latency exchange markets. In the past, traders would exceed limits, and finding prices moving against them, extend their unauthorised positions. The build-up of risk and losses would force the individual to cover up and misrepresent activities. Such hidden positions, when brought to light, have toppled banks, and led to resignations of senior executives with otherwise stellar records. In the future, banks, or worse — clearing houses — could be brought down by high-frequency trading software building massive positions in unforeseen and difficult to predict ways.

The future black box rogue trading scandal will have much in common with prior rogue trader scandals. The actions of those individuals dubbed ‘rogue traders’ have fascinated and, to an extent, invoked a degree of awe and admiration from those not directly affected by their machinations. These individuals circumvented controls, exceeded limits, and carried on by misrepresenting their holdings and risk.

Traders ordinarily buy and sell financial instruments with the goal of making profits each time they trade them. Those who are good at what they do can bring the firms for which they work enormous profits — and, in turn, earn large salaries and bonuses. But there are risks involved and traders can also end up on the loss side of the equation.

Unfortunately, in the high-stakes, high-risk, high-tension world in which traders find themselves, the drive for success can overcome ethics. These individuals cover losses and deceive their colleagues, often in clever and ingenious ways. The result is the so-called rogue trader: people like Jérôme Kerviel at Société Générale and Nick Leeson of Barings Bank, who managed to hide their losses over extended periods by stealth and misrepresentation until their houses of cards tumbled and the spectacular frauds they perpetrated came to light.
With just these two rogue traders, the money involved is almost incomprehensible: Kerviel’s actions (revealed in 2008) cost Société Générale, France’s second biggest bank, some $7.1 billion. Leeson, who brought down the 233-yearold Barings Bank almost a decade earlier, did so at a cost to the bank of about a third of that amount.

Interestingly enough, instead of invoking public scorn and rage, Kerviel was looked upon by some as a hero because he (to his fans) outwitted fat-cat bankers. Leeson was seen as the inevitable result of blue-blooded bankers unprepared for the new, rough and- tumble world of global finance. The very use of the word rogue (which has long been synonymous with words such as scamp, scoundrel or rascal) raises a number of interesting questions when it’s paired with trader. Why do these individuals receive jail sentences well under ten years for their deeds? After all, many bank robbers — notably those who use just a note asking for money, are unarmed and on average make off with $4,000 — tend to receive sentences that are double that. Is it the very daring of these traders, their seeming success at fooling so many people in charge of these institutions, that attracts wide public attraction (and perhaps admiration)? Why do rogue traders have movies made about their crimes, sign enriching book deals and go on to successfully reinvent themselves once they are released from their comparatively short prison terms?

A closer look at rogue traders
Examining the lives of the most prominent of the rogue traders reveals some common characteristics that could be used by those in charge of financial institutions to flag individuals whose actions may warrant closer supervision.

•They tend to have less than stellar credentials or educational backgrounds, but a strong drive to succeed. This would serve as a good description of Nick Leeson, who according to the BBC, was “a working class lad from Watford, the son of a plasterer, [who] was chuffed to land a job in the purportedly glamorous world of the City of London in 1982…. It was a relatively low-grade job, but he quickly made a name for himself. He worked his way up, becoming a whiz-kid in the hardworking atmosphere of the far-eastern currency markets.” Kerviel was described by The Economist as ‘a country bumpkin from Brittany’. Yet, he was a country bumpkin with an appetite to trade billions although his remit required him to fully hedge his positions.
•They are more interested in being seen as heavy hitters or successful traders among their peers than they aspire to accumulate massive wealth. Leeson, interviewed by the BBC about the actions of Kerviel, explained, “Probably his biggest fear was the fear of failure, as was mine…. Everything gets caught up in the success story around you.” Moreover, the investigations quickly showed that Leeson and Kerviel made no personal profits from rogue trading.
•They seem to be especially good at winning the confidence of those above and below them in their firms’ hierarchies. Influence and ‘star status’ gives them the latitude and permission to circumvent standard practices and be granted exceptions. For example, according to The New York Times, John Rusnak of Allfirst Financial of Baltimore, a subsidiary of Allied Irish, who in 2002 was exposed for hiding losses of $691 million over five years, was allowed to ‘trade during his vacations, which is against banking guidelines because scams are often discovered during a break in trading’ when colleagues spot discrepancies.
•They have an above-average understanding of the back-office systems for mundane tasks like trade confirmations and margining, knowledge that allows them to manipulate data to cover their tracks. According to the BBC, “Société Générale alleges the trader [Kerviel] used in-depth knowledge of the control procedures gained while working in the bank’s middle office in his former job.

How they do it
After the blow-up, it usually turns out that rogue traders have exploited multiple weaknesses in their firms’ procedures and systems. Keep in mind as well, that in most cases, investigations reveal that any number of managers were aware of profits (which later, of course, turn out to be fictitious), and therefore that risks were being taken. The performance culture of banks however, pressurises senior management to turn a somewhat blind eye to what is going on. The hope is that the results will enhance bonuses and promotion opportunities. It is notable that these events occur rarely in firms (e.g., ‘bulge bracket players’) that are regarded as having stronger managements, teamwork cultures and more tightly controlled market operations. Top banks avoid giving any individual broad authority to make both trades and entries into back-office systems. Joseph Jett at Kidder Peabody in 1993 was an unusual case, since he worked for a leading Wall Street firm at the time; however, the firm’s own systems were miscalculating profits for fixed-income positions. Jett merely made trades that Kidder’s own systems said were profitable, when in fact they were not.

‘Joseph Jett was head of government bond trading at Kidder Peabody when in 1993, he was abruptly fired — and blamed for generating losses that resulted in a $210 million write-off for Kidder’s parent, General Electric. Both the Securities & Exchange Commission and the National Association of Securities Dealers rejected Kidder’s charges that Jett had engaged in fraud. But the SEC charged him with book- and record-keeping violations as well as intent to commit fraud and ordered him to disgorge $8.2 million in alleged false profits.’ Leeson and Rusnak, on the other hand, overrode standard procedures by allowing large trading positions to be built up without adequate counterparty confirmations. They both were able to manipulate risk management reports to convey the false impressions that any losing positions were hedged by profitable ones (Rusnak), or that the losing positions belonged to customers (Leeson). They also were able to limit or prevent any external pricing validation (mark-to-market) of their positions to take place.

An ounce of prevention
The major rogue trading cases were all avoidable through basic, general management. There are a few immutable principles in the control of trading operations, but management must enforce them rigorously and continuously with no exceptions. The four core principles for avoiding rogue trading disasters are as follows.

1.Separating front/middle/back office activities and processes — Segregation of duties ensures traders cannot interfere with the processing and reporting of their transactions
2.Limiting access to trading, risk control and settlement systems to separate functional areas completely and preventing any individual from having access to more than one area
3.Using independent, outside pricing sources for mark-to-market valuing of positions — it’s easy to value a bank’s position in IBM shares, but many traded instruments do not have an easily obtained market price. Allowing internal staff to enter price estimates for profit and loss calculations opens the firm to deception
4.Ensuring integrity, which is the key to a good trading system — this means all trade accounting data are accurate and consistent, and can be verified easily through reconciliation with external parties (e.g., client trade confirmations, clearing)
In sum, firms must maintain a robust control environment, allow for audits, limit access to key functions to specified users, and be able to reconcile with other internal and external data.

Rogues to the nth power
Until recently, traders who hid risks day after day were the main concern. Paper trade tickets stuffed in a drawer or error accounts were the means rogue traders used to cover their losses. Today, sophisticated market technology allows orders to be placed and trades to be made with mere milliseconds of delay. Have banks’ internal controls been adapted and made tougher to handle this new environment? ‘Fat-finger’ errors from misentry of data or an extra digit added to the quantity field remain common, and are difficult to prevent. While leading firms have strong controls capable of detecting and closing off trading activities that exceed limits, I fear other firms active in today’s markets could find their software building large loss-making positions in unforeseen ways and without real-time detection. The rising concern today is about traders developing black box programs or algorithms that run amok or ‘go rogue’ when triggered by certain conditions. The speed and volumes in today’s markets mean ‘algos’ can do their damage in an extraordinarily short period of time. In the past, forged paperwork was often behind trading frauds; but this is less of a risk in today’s computerised age, when high-frequency traders are dominating the equity market. According to the Financial Times, these traders now generate more than 60 per cent of the volume of trades because they are capable, collectively, of executing billions of shares a day. Moreover, it also notes that, according to regulators, “it is unclear who is monitoring traders to ensure they do not take undue risks with their algorithms.” Other unanswered questions include:

•Are banks running ‘stress tests’ on their high frequency trading programs?
•Could errors in price feeds from the many sources of market data trigger a flood of trades before the aberration is detected?
•Could detailed knowledge of a large bank’s algo trading rules be exploited by an external trader who sets off the market conditions that lead the algo to ‘misbehave’ or ‘go rogue’?
•Are regulatory cross-market ‘circuit breakers’ and trading halts required, or can natural price discovery be retained in today’s low-latency markets?
Concern about the role of these algorithms skyrocketed after the so-called ‘flash crash’ of 6 May 2010 that caused the Dow Jones Industrial Average to plunge nearly 1,000 points in less than a half hour, with nearly a trillion dollars in stock market value evaporating — and then (mysteriously) reappearing. When it was later discovered that 68 per cent of the questionable trades that ended up being cancelled involved Exchange-Traded Funds (ETFs), whose trading is highly computerised, the US regulators decided to explore whether algorithms that cause disruption in markets should be treated as if they were rogue traders.

Regulators are eager to develop methods for assigning responsibility when trading technology goes awry. Overall, the computerisation of financial markets has improved transparency and efficiency, and reduced investors’ costs. To avoid politically-motivated bans on new trading technologies, leaders in the financial markets industry must define when high-frequency or algorithmic trading crosses the line into being disruptive to markets, and who is responsible when it happens. Finding the answers to these concerns is now perhaps the most critical element in ensuring the safety of financial systems in the future.



Source: http://bsr.london.edu/blog/post-50/index.html

Pope Bitterz D'Alomo
10th October 2011, 06:03 AM
Regulators are eager to develop methods for assigning responsibility when trading technology goes awry. Eager indeed...laughable !

Pope Bitterz D'Alomo
30th January 2012, 08:35 PM
http://74.54.19.227/GHP/img/pics/66132952.295.jpg31-year-old City trader has pleaded not guilty to four counts of fraud and false accounting while working for the Swiss bank UBS at Southwark crown court.

Kweku Adoboli, of east London, appeared at Southwark crown court to deny the charges. They relate to Britain's biggest banking fraud, which cost UBS almost £1.5bn.

Adoboli, the former senior trader on the bank's global synthetic equities desk, spoke only to confirm his name, plead not guilty to the charges and thank Judge Alistair McCreath when he remanded him in custody to face trial on 3 September. The trial is expected to last for around six weeks.

A packed court heard that between 1 October 2008 and 1 June 2011, Adoboli was accused of fraud and was told he "dishonestly abused his position to gain for yourself".

He was also accused of false accounting by falsifying records of transactions for UBS over the same period. Between May and September last year, he was accused of false accounting of exchange traded funds and "fraud by abuse of position".

Adoboli took notes throughout the brief hearing, which lasted for around 20 minutes.

The judge told him: "Kweku Adoboli, I remand you in custody. I or some other judge will hear any application for bail as and when it is made. Your trial will be on 3 September. There will be a case management hearing on 9 April."

Fashion Yaa
30th January 2012, 09:06 PM
So sad. Anyone know how many years he'll serve

Pope Bitterz D'Alomo
30th January 2012, 11:41 PM
So sad. Anyone know how many years he'll serve

minimum of 15yrs let's wait and see how good his attorney is.

Quaiqu Ananse
31st January 2012, 08:08 PM
thanks for the update...
but it still pisses me off to no end that he's being used as a scape goat...

Fashion Yaa
31st January 2012, 08:56 PM
minimum of 15yrs let's wait and see how good his attorney is. thank you Pope ......we can always coint on u with 411