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Zurich - UBS said a rogue trader had lost it $2bn in
unauthorised dealing and police in London arrested a man in connection with the
case.
British police said they had arrested a 31-year-old man on
suspicion of fraud. Swiss newspaper NZZ cited UBS as saying the trader worked
in its London equities division.
"I can confirm that an employee of the bank was
arrested in London in connection with the statement," a spokesman for UBS
spokesperson told Reuters on Thursday.
UBS warned it might post a loss in the third quarter after
the rogue trades, a huge blow as the Swiss bank struggles to rebuild its
credibility after years of crises.
The loss threatens the future of UBS's investment bank,
which is being reviewed by Chief Executive Oswald Gruebel as part of a
wide-ranging restructuring following heavy losses in the credit crisis and a
damaging scandal over bankers helping rich US clients dodge taxes.
UBS said it was possible that the trading loss could cause
an overall loss in the third quarter of this year. It also said that no client
positions were affected.
"The matter is still being investigated, but UBS's
current estimate of the loss on the trades is in the range of $2bn," the
bank said in a brief statement.
In an internal email the bank said the unauthorised trade
was "distressing" and it would "spare no effort" to find
out what happened.
UBS employed almost 18 000 people in its investment bank at
the end of June, most of them based outside Switzerland, particularly in London
and the United States.
A spokesperson declined to give any further details.
UBS shares were 5.5% lower at 10.33 Swiss francs at 08:37
GMT, far weaker than the European banking sector , which was up 1.3%.
"(This) is a staggering demonstration that all the
clever systems that the banks now have, especially after the financial crisis,
still cannot stop a determined individual getting round them if they want
to," said Chris Roebuck, Visiting Professor at Cass Business School in
London.
"It will yet again confirm to the majority of
shareholders who are Swiss that investment banking is not 'proper' banking, as
private banking is."
Kerviel
Any losses in its investment bank risk scaring UBS's rich
clients and prompting a further flight from its huge private bank, the core of
its business.
"This loss has the scope to have a material impact on
the perception of UBS' private bank, impacting its future operating
trends," Goldman Sachs analysts Jernei Omahen and Peter Skoog wrote in a
note.
"Today's announcement therefore adds to the long list
of arguments (and pressure) for a substantially smaller investment bank."
UBS's news caused disbelief among market operators, coming
so soon after former Societe Generale trader Jerome Kerviel's racked up a
$6.7bn loss in unauthorised deals revealed in 2008. Kerviel was sentenced to
three years in prison in October 2010.
"It is amazing that this is still possible," said
ZKB trading analyst Claude Zehnder. "They obviously have a problem with
risk management. Even when the amount isn't so high, it is once more a loss of
confidence that casts UBS in a poor light."
"With this they are losing a lot of credit that they
had regained with effort," he added.
Switzerland's financial markets regulator FINMA said it had
been informed of the rogue trader case and was in close contact with UBS.
Reform
The bank has in the past two years tried to rebuild the investment bank that nearly felled it during the financial crisis. It needed a state bailout after heavy losses on US subprime mortgage-related securities.
Under Gruebel and investment bank boss Carsten Kengeter -
themselves both once traders - it has hired hundreds of traders, in a bid to
boost its bond business.
Former Bundesbank head Axel Weber is due to join the UBS board next May and take over as chairperson in 2013.
The weak performance of the investment bank and tough
capital rules in Switzerland had already attracted intense scrutiny over how
UBS will cope, with analysts calling for a retrenchment of the investment bank.
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.
UBS said last month it was to axe 3 500 jobs to shave 2 billion Swiss francs off annual costs as it joins rivals in reversing a post-crisis hiring binge and preparing for a tough few years.
