UBS Rushes To Make Changes After The UBS Trader's $2.3 Billion Loss Shows $10 Billion Wagered On Positions

The fallout from the UBS trader who lost $2.3 billion of the firm’s money betting on index futures is grim.

Turns out, he wagered $10 billion on positions on S&P 500, DAX, and EuroStoxx index futures over the last three months, and he allegedly falsely accounted for the hedges off-setting the potetial risk of those trades.

Before Kweku Adoboli’s ficitious hedges were discovered, the firm had plans to layoff over 3,500 people in order to save $2 billion. Abodoli’s loss more than reverses the savings effect of those layoffs.

Other effects:

  • Adoboli’s boss, John Hughes, resigned last week
  • Other members of the Delta One team were sent home
  • UBS created a taskforce called “Project Bronze” to unwind the position on Friday
  • UBS appoints David Sidwell, the Swiss bank’s British-born senior independent director, and the former CFO of JPMorgan, to lead a team that wil figure out how the alleged fraud was carried out, why risk controls were not activated and to look at putting measures in place to stop it from happening again
  • Deloitte appointed to carry out the joint independent investigation on behalf of the FSA and the Swiss Financial Market Supervisory Authority
  • Oswald Gruebel may be forced to resign
  • The investment bank might be doomed now that the Swiss government is reportedly putting pressure on UBS to shut it down

The loss also raises serious questions about the future viability of the UBS investment bank. Adoboli wagered $10 billion, according to the WSJ, and his allegedly fudged accounts of his hedges made it past the firm’s risk controls for three months, all while Oswald Gruebel was insisting, “I’m pretty convinced we have one of the best risk managements in the industry.

The WSJ reports:

The bank marshalled its own taskforce, called Project Bronze, to unwind Mr Adoboli’s positions and ensure there are no other surprises lurking. By noon on Friday, the full $10 billion portfolio had been wound down.

One young trader’s access to that amount of money, and the fact that he took the losing positions in just 3 months surely concerns clients. UBS sent them a note saying, “We fully understand that this incident has caused you concern. We too are very disappointed, and we assure you that UBS is taking the matter extremely seriously.”

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