UBS trader charged with $2 bln fraud

LONDON/ZURICH, (Reuters) – British police charged  UBS trader Kweku Adoboli today with fraud and  false accounting dating back to 2008, a day after the Swiss bank  was plunged into crisis by revealing a $2 billion trading loss.   
 Wearing a light blue sweater and a white shirt, 31-year-old  Adoboli wiped away tears as he appeared in court in London,  where he was formally accused of two counts of false accounting,  and one count of fraud by abuse of position.   
 The charges state that while working as a senior trader in  UBS Global Synthetic Equities, Adoboli “dishonestly abused that  position intending thereby to make a gain for yourself, causing  losses to UBS or to expose UBS to risk of loss.”    
 Adoboli, the son of a retired United Nations employee from  Ghana who attended school and university in Britain, spoke only  to confirm his name and address and will be held until Sept. 22  when he will appear again in the same court.   
 “They are extremely serious charges,” said magistrate  Carolyn Wagstaff.    
 The false accounting charges, said to have taken place  between Oct. 2008 and Dec. 2009, and Jan. 2010 and Sept. 2011,  said he had falsified “an exchange traded fund made or acquired  for an accounting purpose” and falsified “an exchange traded  fund transaction and other internal records”.   
 Exchange traded funds are securities that track an index, a  commodity or a basket of assets, and trade on an exchange.   
 Adoboli, whose father said his family was heartbroken  although he had no doubts about his son’s integrity, later  composed himself during the short hearing and managed a few  smiles at people sitting in the public gallery of the court.   
    
 BANK IN CRISIS   
 Meanwhile, UBS was in turmoil as ratings agencies  warned lax risk management could prompt downgrades and senior  executives cancelled engagements to meet financial regulators.   
 Kingsley Napley, which is representing Adoboli, declined to  comment. The law firm also advised Nick Leeson, whose $1.4  billion derivatives losses triggered the 1995 collapse of  Britain’s Barings Bank.   
 Market speculation has centred on the possibility that the  UBS loss resulted from the shock decision by the Swiss central  bank last week to impose a cap on the red-hot franc, sending the  currency plunging and Swiss shares sharply up.    
   
 One UBS trader in London said staff were expecting  news of more job cuts in the next two weeks as well as zero  bonuses.   
 “In my team people are scared and are playing low profile.  The idea is to stay there and keep your job. In the current  situation, it would be difficult to find another job anywhere  else,” the person told Reuters on condition of anonymity.   
 Britain’s Financial Services Authority and Switzerland’s  FINMA markets regulator are both in close contact with UBS.   
 A senior UBS banker said regular meetings and social events  involving senior managers had been cancelled, which he presumed  was because of crisis management or meetings with regulators.   
 “Morale is dreadful… It’s very damaging to our reputation.  Equities is one of the businesses where we thought we had got it  right,” the banker said.   
    
 MASSIVE OVERHAUL   
 Analysts said the massive loss, announced on Thursday, was  the final nail in the coffin for UBS’ investment bank which has  struggled, like others in the industry, against falling markets  and tough new regulation as well as the soaring Swiss franc.      
        
 Reputational damage from the scandal will force a  restructuring many had already thought inevitable and analysts  and insiders expect UBS may now have to move before an investor  day in New York already planned for November 17.   
 “I wouldn’t be surprised if we got a preliminary  confirmation of a major scaleback soon, even this weekend. The  announcement can’t wait until Q3 results or the investor day,”  said Matthew Czepliewicz, an analyst at Collins Stewart.   
 The two biggest political parties, the Swiss People’s Party  and the Social Democrats, want UBS to split investment banking  from its wealth management arm and pressure for it to take  radical action is likely to mount in the wake of the scandal.   
 Ratings agencies Standard & Poor’s and Moody’s put the  bank’s credit rating on negative watch, while Fitch said it had  put UBS’s viability rating on negative watch.   
 Fitch said the incident “strengthens the arguments for UBS  to down-scale its investment banking unit” while S&P added: “UBS  is currently undertaking a strategic review of the size and  shape of the investment bank division and we consider that the  trading loss may influence the outcome of this process.”   
    
 HISTORY OF MISHAPS   
 UBS had started to see client confidence return this year  after it had to be rescued by the Swiss state in 2008 following  massive losses on toxic assets held by its investment bank. The  bank has had a history of major risk management glitches.   
 The $2 billion that UBS said had been lost effectively wiped  out the first year of savings from a recently-announced  cost-cutting plan involving the loss of 3,500 jobs.      
 “We believe that yesterday’s event could have personnel  consequences on senior management level,” said Vontobel analyst  Teresa Nielsen. “The exit from non-core businesses inside the  investment bank could be accelerated.”   
 In the firing line are Chief Executive Oswald Gruebel,  himself a former trader who was brought out of retirement in  2009 to try to turn UBS around, and investment bank boss Carsten  Kengeter, the bank’s highest paid employee last year.   
 UBS stock, which fell 10.8 percent on Thursday to end at its  lowest close since March 2009, closed up 5.3 percent at 10.26  francs compared with a 0.5 percent rise on the European banking  sector index .   
 New losses in UBS’s investment bank risk scaring rich  clients and prompting a further flight from its huge private  bank, the core of its business that used to be the world’s  biggest wealth manager but has slipped to third place.   
($1 = 0.870 franc)