October 2011: UBS, How Could You Not Know?

I remember a feeling bordering on indifference when I first learned of the most recent example of corporate malfeasance involving an investment bank. In this case it was UBS, although I remember thinking at the time that it might just have easily have been any of the other Wall Street and City high fliers announcing “rogue trader” losses in the region of $2 billion.

Kweku Adoboli, head of the Swiss bank’s global synthetic equities team, somehow managed to hide the extent of the hole he had dug himself into, until his September 15 arrest on suspicion of fraud relating to those losses. The UK’s Financial Services Authority (FSA) was informed, as were the police, and Adoboli was duly charged the following day.

I guess it’s a sign of the times in which we live, but the details surrounding the Adoboli incident are mostly inconsequential. The one thing that isn’t—and this is what everybody wants to know—is how it was possible that no one else knew of Adoboli’s shenanigans? Perhaps I have an overly prosaic understanding of how banks work, but I find it inconceivable that he was the only person aware of what was going on.

Granted, it’s unlikely that a trader would send a group email to the Exco and risk management department detailing the carnage resulting from a particularly bad day at the office, but in the same vein, I simply cannot reconcile the notion that for an organization like UBS, loose cannons like Adoboli can remain undetected for so long. And it’s not like Adoboli was a revered staff member with years of outstanding performance and experience behind him—he was, in banking terms, still wet behind the ears.     

Hopefully, all will be revealed in the “official” investigation, although the cynic in me expects not much more than a few rolling heads—the first being that of Oswald Gruebel, the bank’s CEO who resigned on September 24—a sanitized version of the events loosely resembling the truth, and the usual hollow promises from the bank, the regulators and the industry in general that it’ll never happen again. And they’re right … until the next time, that is. 

And for those of you who enjoy a bit of irony with your morning coffee, here’s a real gem: Adoboli, who now occupies third place on the all time biggest “losers” list behind Jérôme Kerviel and Yasuo Hamanaka, has allegedly retained the UK law firm of Kingsley Napley to represent him during the forthcoming legal proceedings, the same law firm that represented Nick Leeson after he singlehandedly brought Barings to its knees back in February 1995. It wouldn’t surprise me if Leeson has already been in touch with Adoboli extolling the virtues of the after-dinner-speech-making circuit, which, if urban legend is to be believed, has allowed Leeson to feather his nest very nicely, thank you.