UBS AG announced Thursday that a rogue trader racked up about $2 billion in losses, raising serious questions over the bank's risk-management systems just three years after its investment bank had to write down $50 billion in securities trades. UBS is likely to post a third-quarter loss due to the unauthorized trade.
The news sent shares in Switzerland's largest bank down nearly 9% in early trading, although they were down 5.8% by mid-morning. The cost of insuring its five-year bonds against default for one year widened by 0.15 percentage point to 2.25 percentage points.
UBS said it is still investigating the exact circumstances of the trading loss, declining to reveal any further details. In a brief statement, it said that no client positions were affected. The Swiss financial regulator Finma, the Swiss Finance Ministry and the Swiss central bank all declined to comment on the potential loss or its likely causes.
The loss marks a major set
back in the efforts by Chief Executive Oswald Grübel to win back client confidence in a bank that had to be rescued by the Swiss National Bank in 2008. Rebuilding the investment bank has been a top priority for Mr. Grübel since he took the helm at the bank in February 2009, although he has struggled to generate large returns without taking on too much trading risk.
As a result of the huge securities write-downs, the investment bank lost 34.4 billion francs ($39.28 billion) in 2008 and it shut large parts of its trading division. It also launched a wholesale revision of its risk-management systems. Banks seek to prevent such unauthorized trading through risk-control systems and daily reviews of trading books, but such losses have always dogged the industry.
Over the last 18 months, Mr. Grübel has tried to push UBS back into the top ranks of global investment banks, but it has had to contend with tough Swiss banking regulations that are aimed at preventing a repeat of the near-collapse of the bank. Indeed, regulators have kept a close eye in particular on Mr. Grübel's plan to rebuild the fixed-income, currencies and commodities, or FICC business, which sparked the losses several years ago.
UBS has been generally cautious about taking on too much risk since its troubles and has said it has moved away from proprietary trading, raising further questions as to how a trader could generate such a large loss.
While UBS has succeed in part in winning back client confidence at the investment bank, in July, Mr. Grübel scaled back his targets for the unit, after the FICC business posted sluggish performance. He said he would review the future of the trading business in light of tougher new regulations. He was expected to present a new plan for the unit in November. The bank is in the process of laying off about 5% of its staff, with large cuts expected at the investment bank.
Analysts at Espirito Santo Investment Bank said the loss looks manageable, but isn't helpful for sentiment and confidence in the bank's risk management. French bank Société Générale SA in January 2008 was rocked by a loss of around €4.9 billion ($6.74 billion) from a series of trades made by one employee.
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