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City, London financial community stunned by reports of $2 billion rogue trades at UBS

posted 15 Sept 2011, 14:16 by Sam Mbale   [ updated 15 Sept 2011, 14:28 ]
London's financial heart shocked by news a trader from UBS is being held in the capital on suspicion of conducting $2 billion worth of rogue deals in what analysts say is a . major blow to the Swiss bank's strong reputation

LONDON, ENGLAND, UK (SEPTEMBER 15, 2011) REUTERS - The arrest in London of a man suspected of losing 2 billion dollars in rogue trading at UBS was the talk of the financial community in the capital on Thursday (September 15), with traders and analysts stunned at the news.

"It's not a great day for UBS to announce this loss on the third year anniversary of the collapse of Lehmans...But, to be fair, this happens in the sector from time to time, rogue trades do get discovered," said Louise Cooper, market analyst at BGC Partners in Canary Wharf.

When news broke in the morning UBS shares dropped 5 percent and by the afternoon they had slipped 9 percent.

UBS said it might post a third-quarter loss after the rogue trades, a huge blow as it struggles to rebuild its credibility after years of crises.

It also threatens the future of UBS's investment bank, which is being reviewed as part of a wide-ranging restructuring following heavy losses in the credit crisis and a damaging scandal over bankers helping rich U.S. clients dodge taxes.

Cooper said the damage to the reputation of their "jewel in the crown" will be a real blow.

"Obviously if you are a rich person who wants to preserve your capital, preserve your money, the last thing you want to do is give it to a bank that has a rogue trader loose 2 billion dollars, so that is the concern for UBS, the damage to its reputation, the reputational risk of this event," she said.

Traders were full of speculation as to how the rogue trader managed to cover up his deals, thought to have been on the foreign exchange markets.

Cooper said many other banks will now be looking nervously at their risk management.

"The big question is who else has taken a bath? I love that city expression. Who else has taken a bath in these very volatile markets? Who else has lost their shirt and that has got to be the question," she said.

"The markets have been so enormously volatile, the swings have been so wild that it is so easy to lose money, you can lose money in minutes if not seconds. And earn a lot of money," she added.

For the general public, the latest scandal is just another development to further tarnish the image of the industry.

"It just seems a bit crazy that one man can run up such incredible debts. I mean it's basically gambling....But, someone must have known about it. I mean you would have thought you would have had managers and line managers, checks and procedures. A bit shocking really, it's a lot of money to lose," said Andrew Henry who works in Canary Wharf, but not in financial services.

Canary Wharf bankers and finance workers were tight-lipped, unwilling to comment on the ill-fortunes of UBS.