[credit provider=”Fernando de Sousa on Flickr” url=”http://www.flickr.com/photos/fernando/1233720908/lightbox/#/photos/fernando/1233720908/”]
The $2 billion loss that rocked UBS unexpectedly was most likely a result of a trade involving the Swiss franc.Here’s why:
On September 6, the Swiss National Bank intervened to curb the Swiss franc’s rapid appreciation.
As a result, the Swissie tumbled 8.5% to trade near 1.20 euros.
That same day, alleged rogue trader Kweku Adoboli, who used to work for UBS’s Delta One desk, updated his Facebook status as “Need a miracle,” Bloomberg reported.
The Delta One desk is a client-trading desk that “makes markets” for clients, meaning that it takes the other side of their trades. Then it’s supposed to hedge those risks. Whoops!
Looks like he didn’t get one, and no miracle came through.
Adoboli, 31, was arrested about a week later for allegedly losing UBS $2 billion because of his unauthorised trades. The rogue trader has now been charged with fraud and false accounting because his trades must have been covered up – otherwise (we hope) UBS risk management would have caught the error.
It remains unclear what his “unauthorised trades” were, but many suspect it involved the Swissie.
Brokers told CNN that Adoboli was trading an exchange-traded fund which tracked the volatile silver futures market and was priced in Swiss francs.
It is thought that he may accidentally have left the Swiss franc vs U.S. dollar side of the equation uncovered and got stung when the Swiss national bank intervened to defend the franc in early September.
It’s not really at all surprising that the SNB move proved to be a widowmaker.
Look how extreme the movements in USDCHF have been recently around the latest moves.