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Fri September 16, 2011
Rogue Trader Arrested In Swiss Bank UBS Scandal
Originally published on Fri September 16, 2011 7:23 am
DAVID GREENE, Host:
Already dealing with a debt crisis, Europe's banks are now being rattled by another rogue trading scandal. A 31-year-old trader was arrested yesterday in London after a $2 billion loss was revealed by the Swiss banking giant UBS. Megan Murphy has been following the story very closely, and she's the banking correspondent for The Financial Times newspaper in London, and London is where we reached her. Good morning, Megan.
MEGAN MURPHY: Good morning.
GREENE: What can you tell us about the suspect ? the so-called rogue trader, at this point?
MURPHY: The man arrested yesterday is a 31-year-old named Kweku Adoboli. He originally from Ghana, went to school in London, worked at UBS since 2006. He's part of what they call their Delta One trading team, which is a shadowy but very fast-going corner of the investment banking world that's really one of the last bastions of what's called proprietary trading, where banks take big bets with their own money on certain positions. And usually it can involve pretty esoteric products, including swaps, and in this case, exchange traded funds, or ETS, as they're commonly known - which is a hugely fast-going corner of the financial market.
GREENE: If I could just ask a really basic question, what is a rogue trader compared to a regular trader? When you go rogue what does that mean?
MURPHY: Well, this is sort of this issue that always crops up in the scandals, is it's immediately classified as rogue. UBS's, straight off the blocks, yesterday morning at 8 AM, saying this is not authorized trading. So I think, always, the issue is: are you doing something that is purposely evading a bank systems control? In other words, are you taking positions, are you placing bets, are you executing orders that you have no authority to do so?
But what the argument always is on the other side, is how does someone manage to make and rack up a $2 billion trading loss without their boss knowing, without their supervisors knowing, without the general risks and controls knowing? That's frequently the defense we see by people accused of so-called rogue trading, is that, actually, how rogue was it if the bank was well aware of what I was doing the entire time?
GREENE: Well, why would a trader do this? I mean, could this man in London have been wanting to make money for himself? Was he still trying to make money for the bank and just might have made a really bad decision?
MURPHY: You know, almost always with these things, it's not someone trying to make money for themselves, which is always the biggest surprise. On September 6th, Mr. Adoboli posted a message on his Facebook which said I need a miracle. That was the last post on his Facebook.
MURPHY: And that was - at the same time the Swiss Central Bank was intervening to essentially devalue the Swiss currency. So there's lots of speculation in the market that what he was probably trying to do was cover a large exposure to the Swiss franc, you know, that the market had been stunned by the intervention of the Swiss central bank. Now that's just market speculation as to what possibly could generate such a huge loss. But almost always in these kind of things, it's someone trying to cover up a mistake they've made that then actually makes the mistake worse. They try and, sort of, make the money back that they've lost, and that leads to a downward spiral until eventually they're either caught or they have to come forward with their hands up.
GREENE: Well, what is the wider impact on the banking industry? I mean what are the lessons here? What does this say about the bank's ability to see these things coming?
MURPHY: For the industry general it couldn't have come at a worst possible time. Thursday was the three-year anniversary of the collapse of Lehman Brothers. And this leads calls from everyone, saying nothing has changed. We still don't know what investment banks are doing. The risk controls aren't there, the management isn't there. I spoke to several senior investment bankers at banks who didn't even know what Delta One is or what they do. Which is quite alarming, given how we've come since the crisis. So I think the industry will be doing a lot of soul-searching today and over the weekend, as details about this emerge - to sort of say, you know, can we actually justify these universal banking models where we have this - what people over in the UK always call casino banking - riskier investment banking style activities that do threaten to bring down entire institutions. And I expect that debate to be cranked up quite a few notches in the wake of this.
GREENE: Megan Murphy is the banking correspondent for The Financial Times newspaper. Megan, thanks for joining us this morning.
MURPHY: Thanks so much. Transcript provided by NPR, Copyright NPR.