London police have arrested a 31 year old London trader on suspicion of fraud in connection with a $2 billion trading loss at Swiss investment bank UBS.
City of London police confirmed they had arrested a 31-year-old man in London last night on "suspicion of fraud by abuse of position". They said he remains in police custody while investigations continue.
Swiss investment bank UBS announced this morning it had discovered a $2 billion unauthorised trade. UBS fell as much as 9.6 per cent in Swiss trading after saying it may book a loss in the third quarter of 2011 after announcing a trading loss of about $2 billion because of the unauthorised trading.
No client positions were affected, the Zurich-based bank said in a statement today.
"UBS has discovered a loss due to unauthorized trading by a trader in its investment bank," UBS said in the statement. "The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion."
UBS chief executive Oswald Gruebel told staff in a memo that the bank's management aims to "get to the bottom of the matter as quickly as possible, and will spare no effort to establish exactly what has happened."
"While the news is distressing, it will not change the fundamental strength of our firm" he added.
The announcement is a blow to the Swiss bank as it struggles to rebuild its credibility after years of crises. It also raises doubts over Mr Gruebel's efforts to put UBS back on its feet after heavy losses in
the credit crisis, and a damaging scandal concerning tax evasion by some of the bank's clients.
Switzerland's financial markets regulator FINMA said it had been informed of the rogue trader case and was in close contact with UBS.
Any losses in its investment bank risk scaring UBS's rich clients and a further flight from its huge private bank, the core of its business.
UBS's loss caused disbelief among market operators, coming so soon after former Societe Generale trader Jerome Kerviel's racked up a $6.7 billion loss in unauthorised deals. SocGen unveiled the loss in 2008. Kerviel was sentenced to three years in prison in October 2010.
UBS has in the past two years tried to rebuild the investment bank that nearly felled it during the financial crisis, when losses on US subprime mortgage-related securities led it to a state bailout.
Under Gruebel and investment bank boss Carsten Kengeter - themselves both once traders - it has hired hundreds of traders, in a bid to boost its bond business. But the weak performance of the unit and tough capital rules in Switzerland, had already attracted intense scrutiny over how UBS will cope, with analysts calling for a retrenchment of the investment bank.
UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank.
UBS said last month it is to axe 3,500 jobs to shave 2 billion Swiss francs ($2.3 billion) off annual costs as it joins rivals in reversing a post-crisis hiring binge and preparing for a tough few years.
Bloomberg/Reuters
