The confidence in major European banks was shattered once again after UBS, the largest Swiss credit institution, announced losses of $2 billion due to unauthorized financial transactions made by a trader at the Investment Division.
Neue Zuercher Zeitung, a Swiss newspaper, citing sources within UBS, writes that the losses occurred in the securities division in London and were discovered on Wednesday. London police already arrested a 31-year-old young man on suspicion of “fraud by abuse of position”, the police announced in a statement quoted by Bloomberg.
According to Financial Times, the arrested person’s name is Kweku Adoboli. “UBS has found a loss caused by unauthorized trading activities of a trader at the investment bank. The case is still under investigation, but UBS estimated that losses caused by the trader amount to two billion dollars”, it said in a statement of the bank, which states that losses could be accounted for in the results for the third quarter of this year.
Bank has ensured that the customers’ positions were not affected. UBS shares have dropped by 9.6% after the announcement, later recovering some of the losses. The situation could not have come at a worse time for the Swiss bank and the entire banking industry.
The financial giant is struggling to regain confidence after huge losses during the financial crisis. Under chief executive Oswald Grubel, the bank claims to have implemented new risk management practices, it retired from real estate trading and it focuses on a low risk business model and customer oriented.
The incident will test investor’s confidence, customers’ and authorities’, writes The Wall Street Journal.
“It is incredible that something like this can happen. Even though the amount is not huge, UBS loses credibility and put itself an unfavorable light. The bank loses the little confidence that has hardly earned. It is clear that they have problems with risk management”, said Claude Zehnder, an analyst of the cantonal bank in Zurich, quoted by Les Echos.
UBS was one of the European banks with the largest exposure to U.S. subprime credit crisis, which brought it losses of $50 billion. The bank managed to survive the loss with state aid and was forced to restructure severely the investment division. Since then, the bank is subject to recurrent debates on the need to separate or not the management of assets from the investment.
Also involved in Bernard Madoff’s business – the biggest crook of stock market, the Swiss bank institution has troubled the bank market by delivering to the I.R.S., under external pressures, data on about 4,450 of its customers and paid a fine of $780 million to end the dispute with the U.S.
UBS announced last month that it will reduce the number of employees by 3.500 to save 2.3 billion dollars per year. Most large investment banks have announced plans for layoffs and are preparing for hard times.