A former UBS trader goes on trial in London this week in a case involving losses of $2.3 billion that will subject the Swiss bank to an "uncomfortable" examination of its culture and practices.
Investment banker Kweku Adoboli, who was arrested a year ago when the huge losses came to light, has pleaded not guilty to two charges of fraud and two of false accounting related to disastrous trades that UBS says were unauthorised.
The episode marked a serious setback for UBS while it was trying to recover from near collapse during the financial crisis in 2008. In the aftermath, the bank made major changes in both its staff and strategy that are still underway.
"Given how serious the consequences of the incident were, we must assume that UBS's culture and practices will be examined during the course of the trial," UBS chief executive Sergio Ermotti told the bank's staff last week.
"As uncomfortable as the entire trial will be for UBS, it will show us what the consequences are when misconduct occurs or when individuals do not take their responsibilities seriously," he wrote in an internal message published on its website.
Adoboli, who worked on a trading desk at UBS's investment banking arm in London, was arrested on September 15, 2011, the day UBS announced it had "discovered a loss due to unauthorised trading". He remained in custody until June 8, when he was released on bail.
If convicted, the 32-year-old Ghanaian faces a possible 10-year jail sentence. His criminal trial at Southwark Crown Court starts on Monday and is expected to last about eight weeks, although the early stages may largely concern procedural issues.
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It will be held before a jury, meaning that under English law there are strict restrictions on what can be reported about the case to avoid prejudicing the trial.
Adoboli is being prosecuted by the state Crown Prosecution Service. UBS is not a party to the trial. This means that, like the media, it will be restricted in what it can say about the case, potentially posing a tricky public relations challenge.
Should any witness or lawyer criticise the actions of others within the bank or its broader systems and practices before the jury, the media will be free to report that but UBS will be limited in what it can say to defend itself.
Individual witnesses will be called to testify, including past and possibly present members of UBS staff, but the bank will not be able to publish rapid and detailed responses.
In an effort to put its side across in a legally safe manner, UBS has posted all the public and internal statements it has made about the affair on a dedicated website, www.ubs.com/unauthorizedtrading.
Far-reaching consequences
British-educated Adoboli, the son of a retired United Nations diplomat from Ghana, joined UBS in 2006. At the time of the alleged offences, he was working on the Exchange Traded Funds (ETFs) desk, part of the equities business within the UBS investment bank.
ETFs are so-called Delta One products, derivatives that closely track underlying securities and give holders exposure to markets that are hard to access or are illiquid.
The court may not get to the core issues for some days. Jury selection is likely to be time-consuming and proceedings could be delayed by legal arguments.
The events UBS refers to as the "unauthorised trading incident" had far-reaching consequences for the bank.
Oswald Gruebel, who had been brought out of retirement in 2009 to steer UBS through the financial crisis, resigned as chief executive on September 24, 2011, nine days after Adoboli's arrest. He was replaced by Ermotti.
On October 5, 2011, the bank announced that the two co-heads of its global equities business had resigned. Another senior manager also left and seven other staff in the division faced disciplinary action. All have now left UBS.
Ermotti says UBS has improved internal monitoring and controls to avoid any repeat of the events of September 2011.
The bank has scaled down some of its investment banking activities and retreated to its traditional core business of wealth management. With $1.554 trillion in assets, UBS is the world's second-largest wealth manager after Bank of America, according to wealth consultancy Scorpio Partnership.