Swiss banking giant UBS put the loss caused by unauthorised speculative trading as $2.3 billion (€1.7 billion), not $2 billion as previously estimated.
Kweku Adoboli, a trader in the London-based global synthetic equity business, allegedly took speculative trading positions in various S&P 500, DAX, and EuroStoxx index futures over the last three months.
Markets, however, moved in a different direction and the positions caused losses.
UBS says these positions were “within the normal business flow of a large global equity trading house as part of a properly hedged portfolio”.
Yet the true magnitude of the risk exposure was distorted because the positions had been offset in its system with fictitious, forward-settling, cash exchange traded fund positions, allegedly executed by the trader. UBS says these fictitious trades concealed the fact that the index futures trades violated its risk limits.
In a statement issued yesterday, it reiterates that no client positions were affected.
Since the Swiss bank announced the loss last week, UK authorities have charged Adoboli with fraud by abuse of position.
The board of directors has set up a special committee to conduct an independent investigation into the matter.
Meanwhile, Moody's has placed UBS under review for possible downgrade. A statement published last week says the ratings agency will primarily review the “ongoing weaknesses” in the group's risk management and controls.
“Moody's believes that a loss of that magnitude would be manageable for the group given its sound liquidity and capital position,” the statement says. “However, the losses call into question the group's ability to successfully complete the rebuilding of its investment banking operations.”
During the financial crisis, UBS lost £35 billion and had to be bailed out by Swiss taxpayers.
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