PA ANALYSIS: UBS has to be the last line in the sand

Following the latest rogue trading scandal, when will banks get serious about their risk management?

PA ANALYSIS: UBS has to be the last line in the sand


The TLA that is UBS is surely now one of the leading contenders  – even if it is only its presence in the UK that is under threat – given the arrest of trader Kweku Adoboli who managed to lose the bank $2bn (£1.3bn) through a series of mismanaged deals on the firm’s Delta One desk.

As soon as the losses were discovered, the firm’s chief executive, Oswald Grubel, came out with an apology, assuring its own employees that no client positions were affected. Thank goodness for that.

Grubel is also the man who reportedly checks the traders’ positions on a weekly basis having virtually taken control of the risk management practices since the start of the credit crisis. His risk management processes obviously didn’t including looking on Facebook as a series of posts over the past few weeks culminated in him admitting he needed “a miracle” to avoid the inevitable.

The buzz in and outside The City is “How did this ever happen?” given the trail of rogue traders that arguably started with Nick Leeson and should have ended with Lehman Brothers – to be fair it should have ended with Nick Leeson, as long ago as 1995. As recently as last year we had Société Générale’s Jerome Kerviel who managed to lose the bank €4.9bn in unauthorised trades.

Adoboli’s arrest comes a matter of days after the UK’s Independent Commission on Banking, led by Sir John Vickers, suggested wholesale changes to protect taxpayers from having to bail out banks that fall victim to their own staff’s malpractice.

Unfortunately, many of the recommendations will not come in until 2019, but the risk management practices of the banks should be overhauled right now as this cannot be allowed to happen again. It is almost a shame that the firm can easily manage an unforeseen $2bn loss, though it will probably equate to Q3’s profits and mean there will be no year-end bonuses. So every cloud…

The reputational risk to UBS will be widespread, which is a particular shame for its wealth management division that was back on its feet, starting to show good performance numbers and hiring good people.

But if its parent company fails, it fails and if it loses money it loses money. The taxpayer should not be expected to bail out a bank because of its own policy failings and this may be a salutary lesson to be learned as we approach the third anniversary of Lehman Brothers’ collapse.



Latest Stories