UBS has said a trader lost about $2 billion in unauthorised dealing and has warned it might post a loss in the third quarter, a huge blow as the Swiss bank struggles to rebuild its credibility after years of crises.
UBS said the person behind the unauthorised trades had been detained in London, where police said they had arrested a 31-year-old man on suspicion of fraud. Swiss newspaper NZZ cited UBS as saying the trader worked in its London equities division.
The loss threatens the future of UBS's investment bank, which is being reviewed by CEO Oswald Gruebel as part of a wide-ranging restructuring following heavy losses in the credit crisis and a damaging scandal over bankers helping rich US clients dodge taxes.
UBS said it was possible that the trading loss could cause an overall loss in the third quarter of this year. It also said that no client positions were affected.
"The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion," the bank said in a brief statement. In an internal e-mail the bank said the unauthorised trade was "distressing" and it would "spare no effort" to find out what happened.
UBS employed almost 18,000 people in its investment bank at the end of June, most of them based outside Switzerland, particularly in London and the US. A spokesman declined to give any further details.
"This is a staggering demonstration that all the clever systems that the banks now have, especially after the financial crisis, still cannot stop a determined individual getting round them if they want to," said Chris Roebuck, from the Cass Business School in London.
Any losses in its investment bank risk scaring UBS's rich clients and prompting a further flight from its huge private bank, the core of its business.
The news from UBS caused disbelief among market operators, coming so soon after former Société Générale trader Jerome Kerviel's racked up a $6.7 billion loss in unauthorised deals revealed in 2008. Kerviel was sentenced to three years in prison in October 2010.
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Switzerland's financial markets regulator FINMA said it had been informed of the rogue trader case and was in close contact with UBS.
The bank has in the past two years tried to rebuild the investment bank that nearly felled it during the financial crisis. It needed a state bail-out after heavy losses on US subprime mortgage-related securities. Under Gruebel and investment bank boss Carsten Kengeter - themselves both once traders - it has hired hundreds of traders, in a bid to boost its bond business.
Former Bundesbank head Axel Weber is due to join the UBS board next May and take over as chairman in 2013.
The weak performance of the investment bank and tough capital rules in Switzerland had already attracted intense scrutiny over how UBS will cope, with analysts calling for a retrenchment of the investment bank.
UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank.
The bank said last month it was to axe 3,500 jobs to shave 2 billion Swiss francs ($2.3 billion) off annual costs as it joins rivals in reversing a post-crisis hiring binge and preparing for a tough few years.
