Given the recent history of UBS, it is fair to ask if Kweku Adoboli is a rogue trader or his employer is a rogue bank.
At one level, Mr Adoboli might appear to fit neatly into the stereotype of the rogue trader, a phenomenon that recurs so often that it is an endemic aspect of modern investment banking. He is young, fairly junior and works on a desk that combined proprietary position-taking with “flow trading” in customer orders.
The latter has in the past allowed rogue traders such as Nick Leeson of Barings and Jérôme Kerviel of Société Générale, to conceal losses while appearing to be doing what their employers wanted. Mr Adoboli has been arrested but not charged, let alone convicted, so he has the presumption of innocence.
But we do know plenty about the proclivity of UBS for getting involved in fiascos in which the bank believed it was taking relatively little risk but ended up losing large amounts of money. The biggest example is the €50bn losses it sustained in the US mortgage market, including its holdings of super-senior “risk-free” debt.
Before that, the bank’s entire senior layer of management was forced out following its involvement in the 1998 collapse of Long-Term Capital Management, the US arbitrage hedge fund run by John Meriwether. UBS had pressed to be closely associated with an operation it regarded as smartly and safely run.
There are similarities between the products relating to the LTCM case and the trading desk on which Mr Adoboli worked. As Izabella Kaminska of FT Alphaville points out, banks’ Delta 1 desks traded and hedged exchange-traded derivatives in ways that involve complex – and difficult to monitor – risk-taking. Mr Kerviel worked on SocGen’s Delta 1 desk.
UBS itself commissioned a report on its experience in the 2008 crisis that was scathing about its inability to control risk and the complacency of its senior management. The paper, by Tobias Straussman of the University of Zurich, concluded:
“Top management was too complacent, wrongly believing that everything was under control, given that numerous risk reports, internal audits and external reviews almost always ended in a positive conclusion. The bank did not lack risk consciousness; it lacked healthy mistrust, independent judgement and strength of leadership.”
Until now, Oswald Grübel, the UBS chief executive, has been praised for pulling the bank round from the 2008 crisis and for instilling greater risk discipline. His mantra to his traders was initially: “Don’t lose any money.” He amended that last year, however, to: “Still don’t lose any money but do more.”
Now, it does not look as if Mr Grübel managed fundamentally to reform the accident-prone nature of UBS. After all that has happened, he cannot simply blame individuals within an organisation that looks distinctly rogue-like.
