Rogue trader costs Swiss bank UBS $2 billion
A rogue trader caused a $2 billion loss for UBS on Thursday, causing the Swiss banking giant's shares dropping 8.7 percent. The plummeting shares could cause the bank to report a loss for the entire third quarter, inflicting more damage on an already fragile banking industry, the Associated Press reports.
Authorities are withholding most pertinent information, but sources close to the situation say that London police have arrested Kweku Adoboli, a 31-year-old employee for the bank, in connection with the fraud. This isn't the first time that such a scheme has caused significant losses, either. In France, Jerome Kerviel famously lost the bank Societe Generale $6.7 billion.
This is not new territory for UBS, who is no stranger to controversy. During the financial crisis two years ago, the bank lost a lot of money due to subprime mortgages and required a bailout from the government. For a bank that seemed to be on the mend, this most recent scandal is a significant blow.
"UBS was seen to have recovered significantly from the credit crisis and to have improved its risk management in the investment bank in spite of its struggle to improve returns," analyst Fionna Swaffield told the AP. "This obviously brings this very much into question."
The $2 billion loss is managable, as Bloomberg reports that UBS currently has about $46 billion in capital from investors, but the timing is still bad. Reports had indicated that the company was gearing up to lay off about 3,5000 works. Perhaps most damaging is the fact that it may reduce confidence in the bank and eliminates an estimated $1.1 billion profit in the third quarter.