UBS last night revealed losses estimated at US$2 billion arising from the rogue trading of an equity dealer working for its investment banking division in London.
Police arrested an employee of UBS early on Thursday morning, UK time, several hours before the bank announced the loss. The employee was arrested at the offices of UBS on allegations of fraud. No charges have yet been laid according to local media.
Media reports last night suggested that UBS identified the loss only on Wednesday. The causes are not clear, though weak controls by line management, and ineffective risk management protocols and perhaps internal audit practices are all bound to share in the blame.
There are some suggestions that the position built up over only a few days, though there are as yet no detailed reports in international media of the events at the heart of the affair. Most conjecture suggests the losses related to equity derivatives, though losses on foreign exchange trading is another theory, and perhaps connected to the cap on the exchange rate in the Swiss franc imposed by the Swiss National Bank last week.
At least one superior of the person arrested resigned from the bank yesterday, according to reports.
UBS said in a statement that "it is possible that this could lead UBS to report a loss for the third quarter of 2011, but it said that "no client positions were affected."
The loss is equal to about 50 basis points off UBS' core tier-one capital, Reuters reported.
For four decent reads on the UBS fraud, here are links to reports in
The Guardian, the
New York Times, the
Financial Times and the
Wall Street Journal.