Kweku Adoboli, 31, the rogue trader who caused a $2-billion loss at UBS, the Swiss-based global financial services company, has hired Kingsley Napley, the London-based law firm that represented rogue trader Nick Leeson in the Barings case of 1995.
Barings was the oldest merchant bank in London until its collapse in 1995 after Leeson, one of its trader-employees, lost £827 million ($1.3 billion) of its money due to speculative investing, primarily in futures contracts, at its Singapore office. (In his Twitter account now, he writes, “No surprises - another financial disaster, I couldn’t be further away - just boarding a plane in Melbourne.”
Kingsley Napley is also advising Rebekah Brooks, former chief executive officer of News Corp’s News International, in the phone-hacking scandal, and Vincent Tchenguiz, the real estate investor arrested by the UK’s Serious Fraud Office (SFO) in March as part of an investigation into the Kaupthing Bank (of Iceland) case. Adoboli chose it a little over 24 hours after his arrest by the City of London police.
An SFO spokesperson said investigation into the UBS case was being led by the City of London Police, who were “exceptionally qualified to handle cases like this”. Today, they formally charged Adoboli with fraud over rogue trading.
Richard Ried with the International Centre for Financial Regulation said, “It is very difficult to know how this (unsupervised risk) could happen. But if you stand back, you’ll see that ETFs (exchange traded funds) over the last couple of years have grown in complexity. It is difficult for those within the bank and regulators outside to know the exact extent of risks involved and to find if this is poor judgement on the part of the trade or fraud. Clearly, the internal risk controls within UBS were not up to it.”
Even as UBS and other banking experts in the City are grappling with the question an how a single trader managed to expose the bank to such a disastrous risk, major rating agencies like Moody’s and S&P have placed UBS under review for a possible downgrade. In a statement issued today, Moody’s said: “The rating review is prompted by the issuer’s senior unsecured debt rating, which was put on review for a possible downgrade on September 15. All the notes’ ratings are directly linked to the senior unsecured debt rating of the issuer, UBS AG.”
Banking and financial services experts are now debating the possibility of UBS exiting the investment banking business altogether. Ried said, “This is clearly going to strengthen the arguments in favour of stronger controls and ‘ring-fencing’ the various divisions of the banks.”
This will also strengthen the voice of those in Switzerland and the UK who have in the past argued that UBS must stick to its core strength, which is wealth management and private banking, he added.
Bloomberg adds: The loss is “the final straw in UBS’s ambitious build-out to a tier-one investment bank,” wrote JPMorgan Chase & Co analysts, led by Kian Abouhossein, in a note to clients yesterday. “First, we think we’ll likely see management changes within UBS’ investment bank. Second, we expect UBS will come under material pressure from shareholders” and regulators to review its investment banking division.
