September 15th, 2011
07:37 PM GMT
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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.

What is astonishing to all of us is that since the banking crisis of 2008, regulatory controls have been tightened up immeasurably, and credit managers are virtually the most important appointee in a financial institution. However the old adage of “where’s there’s a will there’s a way” still prevails, and if a rogue trader wants to go under the radar, sadly it still seems to be an insurmountable problem.  UBS has had copious chairmen and CEOs leading up to and after the banking crisis.  Billions of dollars in losses  have been declared on sub-prime lending and other derivatives and the banks has faced  a serious spat with the U.S. Department of Justice over the tax issues of some of its clients.   

In 2009 Oswald Grübel was appointed CEO, having built a superb reputation running Credit Suisse’s global operations until his retirement.  Slowly but surely he rebuilt UBS’s reputation and investors’ trust in the bank. Largely speaking the bank had returned to profitability in the past two years.

This trading loss will have rocked the management and employees back on their heels. The world of banking has such respect for Mr Grübel.  It will be devastating for him.  His personal integrity is secure. But the losses inevitably beg the question – how was this allowed to happen?

Ever since Nick Leeson’s escapades in the financial futures markets in Singapore took Baring Brothers down to the tune of £800 million back in 1992, psychiatrists, doctors, financial analysts and observers have tried to understand why rogue traders attack markets so irresponsibly, with such gusto and bravado, and without any concern about the damage they do to the institution they work for or their colleagues.

I suppose they just don’t care.  There is always an element of the punter in most traders.  Though the intellect of traders today and their access to program trading is vastly superior to 25 years ago, there is still very real evidence of the idiosyncratic nature of a gambler.  An excess of testosterone is also in liberal supply. Women are very unlikely to behave so irresponsibly. 

Three years ago Societe Generale's Jerome Kerviel incurred unauthorised losses in excess of $5 billion, trading equity indices. Who knows what was going through his mind? Recklessness resulting in him doubling his position; envy and jealousy for being remunerated inadequately; revenge against the management. Who knows?

It is a sad day for UBS and for London, but hopefully the reputational damage will be temporary. Finally let's not forget speculation as to what happened, rather than fact, is running wild.  

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soundoff (17 Responses)
  1. Galactic Cannibal

    This guy screwed up to the tune of $2 billion and his friend John says he hopes he is granted bail. Bail my *ss. Lock him up and have him stand trial. These people have no clue about the masses who struggle each day to put food on their family's tables.

    September 15, 2011 at 9:38 pm |
  2. Michael Millkin

    What a dumba** article. Why????Why???????????.............................GREED, you dumbsh**s. If he made $2B in profits no one would be complaining. They only complain when their GREED backfires. They get to write it off and layoff employees so the biggies can get their outrageous bonuses. What a bunch of c**p

    September 15, 2011 at 11:11 pm |
  3. Billy Graham

    Trading is a zero sum game. If UBS 'lost' $2,000,000,000.00, then at the other end someone, or several someones made $2,000,000,000.00. Where is the news on that? Imagine taking a piece of the $2billion and buying some puts against UBS, knowing there will be a crap-storm when the news goes public?

    September 16, 2011 at 6:41 am |
  4. Quarantine

    Only UBS lost $2B. Somebody else got it. In this day and age where risk management is a requirement for banks and controls are in place, no rogue trader can lose all that money. Kweku Adoboli is just a fall guy, similar to Jerome Kerviel. UBS should have all of their heads fired and charged.

    September 16, 2011 at 10:07 am |
  5. power4things

    Like Bin Laden buying up American and United puts on Friday before 9/11. And, nobody loses $2B, I'm starting to agree with the conspiracy advocates – management is in there somewhere, Adoboli takes the blame, as a shill – for a piece of the action.

    September 16, 2011 at 10:24 am |
  6. douglasjames

    How can this happen? Greed and corruption, any questions?

    September 16, 2011 at 10:25 am |
  7. Christianna

    Now the thieves all over the world should entrust their filthy money to Arabs and Chinese instead of Europeans and Americans. A new era has dawned on our planet.

    September 16, 2011 at 10:54 am |
  8. Katalin

    It can happen that US banks were bailed out and others think they can still do what they want.

    September 16, 2011 at 11:03 am |
  9. Unnamed

    1 Thessalonians 5:2

    "the day of the Lord so cometh as a thief"

    2 Peter 3:10

    "the day of the Lord will come as a thief"

    Revelation 3:3

    "I come as a thief"

    These rogue traders are only puppets. The Thief will steal again and again and again.

    September 16, 2011 at 11:12 am |
  10. Kurtis

    Two words to describe how this still occurs.

    1. Republicans.
    2. Deregulation.

    September 16, 2011 at 2:20 pm |
  11. IP

    Here's how it happened: Before becoming a trader, he had worked as a trade support analyst and had access to back-office systems. When he moved to the trading floor, they didn't turn off his access which is required. So, he was able to do all kinds of things with back-office systems to hide his trades. if he made profit, nobody would care.

    September 16, 2011 at 2:39 pm |
  12. Mary

    He must have had a good run, made a lot of money for the bank. Then was promised hefty bonus for doubling the performance, because the bank's strategic targets and objectives must be met to satisfy shareholders. His reputation allowed him free rein ( no one checking the checker), so he went crazy. The little employee is as greedy as big business made him. The world will be undone by greed!

    September 16, 2011 at 9:14 pm |
  13. What about unauthorised profits

    The article does not answer the question. The comments do.

    September 17, 2011 at 1:30 am |
  14. Gerry Smith

    CNN - are you allowing anyone to write for you these days? This is drivel. The author is a "contributer"? Your disclaimer says that comments are not pre-screened before they post. You really should have a more stringent policy for your column writers.

    September 17, 2011 at 6:28 am |
  15. rajneet

    fire the entire board and the big shots in the investment banking div. Seeing all what happening bonus paid should be related to dividend

    September 17, 2011 at 8:18 pm |
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    November 4, 2012 at 7:24 pm |

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