The American manager of Kweku M Adoboli, a former UBS trader, told a court here on Friday that he was surprised by the size of some of the positions on the bank's London trading floor.
"I think there was a lot of risk-taking happening in London that was of a proprietary nature,'' the manager, John DiBacco, said he had told investigators from the accounting firm of KPMG who were examining the huge losses at UBS's exchange traded-funds desk in November 2011. "There was a culture that was risk-seeking, and not risk-averse.''
His testimony came during the seventh day of the trial of Adoboli, 32, who faces four counts of fraud and false accounting in connection with a $2.3 billion loss at UBS. He has pleaded not guilty to the charges.
In Southwark Crown Court in London, the boyish-looking DiBacco was cross-examined for more than three hours by Adoboli's lawyer, Paul Garlick, whose questions appeared to be aimed at showing the Swiss bank was fully aware of his client's activities and that his trading was in line with the risk-taking culture in London.
DiBacco was the former global head of synthetic equity trading at UBS and Adoboli's boss before he was terminated in January 2012 for failure to supervise. DiBacco said he disagreed with UBS's assessment of his performance.
Earlier on Friday, a prosecutor, Sasha Wass, focused on the risk limits DiBacco placed on the London trading desk when he took it over in April 2011.
DiBacco, dressed in a blue pin-striped suit, pale blue shirt and red silk tie, testified that in late July 2011 he telephoned Adoboli while on vacation in Colorado and ordered him to cut the risk in his trading book.
DiBacco said he remembered the conversation with the trader "very clearly'' because he was speaking on the telephone in front of his girlfriend who was "not particularly pleased'' that he was talking about markets and risk while on vacation.
"Shut everything down,'' DiBacco said he told Adoboli. ''I want no risk.''
A few weeks later, in August, DiBacco said he was alerted by one of UBS's managers in the United States that a futures trade had not been booked. When he learned that the trade had been executed by the exchange-traded fund desk in London, DiBacco telephoned the desk. Failing to reach anyone, he called Adoboli on his cellphone.
"What the hell is going on?" he said he asked Adoboli.
The trader replied that he forgot, DiBacco said. At the time, London was being roiled by street riots, but DiBacco said he told Adoboli to return to the office that evening and book the trades.
At the end of the month, DiBacco said he visited the London office after he was troubled by his inability to get a clear handle on the ETF desk's profits and losses. But it was only on September 14, when Adoboli sent him an email that the prosecution has said outlined fictitious trading activities, that he realised what was happening, he said. DiBacco said he read the email twice, because he couldn't believe it, before showing it on his BlackBerry to his own boss.
At a face-to-face meeting with Mr. Adoboli later that day, DiBacco said he learned that the trader's losses had spiraled up to $2 billion from $2 million in the span of a month. Adoboli, he said, had about $100 million in losses in July, which he had pared down to $2 million as the market rallied during the month. But the losses ballooned again in August. When DiBacco asked Adoboli at the meeting why he engaged in the fictitious trades, he said that Adoboli told him that wanted to make money for UBS.
During the cross-examination, Adoboli's lawyer asked about a reply DiBacco sent to a June 23 email from Adoboli. In the email, Adoboli said he was running a $200 million position, which breached the desk's risk limits, but made a $6 million profit. DiBacco, who was in a meeting when he got the email, replied: ''Thanks for the update. Well done.''
That did not sound "very censorious," the lawyer, Garlick said. "The culture of the bank at the time is if traders were making big profits you cast a blind eye over the risks.''
DiBacco said that he forwarded Adoboli's email to his boss, Ricardo Honegger, which was a ''pretty aggressive action'' and that he sent a subsequent email a few minutes later to Adoboli saying: ''When over $100 million and certainly over $200 million I need to know before, not after.''
The strain of the day-long testimony showed as DiBacco snapped at Garlick at one point. It didn't help that, as is the custom in London, DiBacco had to stand while giving testimony all day.
© 2012 The New York Times News Service
