(CNN) - UBS stands for the Union Bank of Switzerland. Yet this week's discovery of a $2 billion loss by an alleged rogue trader gave this most conservative of financial institutions the dubious honor of being dubbed the ‘Unauthorized’ Bank of Switzerland across many a dealing room in London.
The trader allegedly responsible has been identified. Police have made an arrest and the bank’s head of risk management will likely be engaged in some serious conversations. All the while, banking sector analysts are furiously adjusting their next earnings forecasts for the company.
In a memo to staff, UBS Chief Executive Oswald Grueber reportedly told staff that management would get to the bottom of the matter as soon as possible.
However, people familiar with the matter tell me Thursday's event may lead to some profound changes for the 157-year-old finance house.
CNN's Felicia Taylor reports on the business generated by New York's Fashion Week.
Editor's note: David Buik is a veteran commentator and partner at BGC Partners.
London (CNN) - How ironic that it should be exactly three years to the day that Hank Paulson, then the U.S. Treasury Secretary, allowed Lehman Brothers to go to the wall, that an unauthorised loss of $2 billion from UBS’s investment banking operation in London should have been announced by CEO Oswald Grübel.
Paulson’s decision was inexplicable in the circumstances, having saved Bear Stearns and supported AIG, and it sent seismic tremors of fear through financial markets not seen since 1929. UBS’s loss has at least been declared, though the reason behind the alleged behaviour of 31-year-old Kweku Adoboli may take some weeks to manifest itself.
London (CNN) - Greece is almost certain to default on its debts, but the type of default – and its impact on the markets, Europe and the world – is yet to play out.
A default can come in three different forms:
A “selective default”. Under the terms of the second bail-out, some creditors can roll over their debt and take a “hair-cut”, or losses on the money they are owed. This is done to protect against the possibility of greater losses in the future. It is limited, controlled and understood. Crucially, it is expected.
The greater fear is that Greece defaults on a much greater scale. An “orderly default” would be one that is planned for, so creditors – and the markets - are prepared and have a plan to deal with losses in the value of their investments. While markets will be volatile, there will be soothing statements from eurozone leaders and it will be controlled.
The worst case scenario is that Greece defaults outright and without warning. This is what people are referring to as a "disorderly default,” and that is the big fear. This would be hugely significant because it will almost certainly lead to contagion. It will not necessarily lead to Greece being kicked out of the euro, nor the collapse thereof. It will however pose fundamental questions about the foundations of the euro project. Market reaction could be as bad as when Lehman Brothers collapsed in 2008.
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