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UBS hit by $2bn rogue trader loss

Zurich, September 15, 2011

UBS said a trader had lost around $2 billion in unauthorised dealing and 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.

The loss raises doubts over chief executive Oswald Gruebel's efforts to put UBS back on its feet after heavy losses in the credit crisis, and a damaging scandal over bankers helping rich US clients dodge taxes.

'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.     

UBS shares were 5.5 percent lower at 10.33 Swiss francs at 0837 GMT, far weaker than the European banking sector , which was up 1.3 percent.     

The bank 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.

A spokesman declined to give any further detail.     

Switzerland's financial markets regulator Finma said it had been informed of the rogue trader case and was in close contact with UBS.          
Any losses in its investment bank risk scaring UBS's rich clients and a further flight from its huge private bank, the core of its business.

UBS's loss caused disbelief among market operators, coming so soon after former Societe Generale trader Jerome Kerviel's racked up a $6.7 billion loss in unauthorised deals.

SocGen unveiled the loss in 2008. Kerviel was sentenced to three years in prison in October 2010. 

'It is amazing that this is still possible,' said ZKB trading analyst Claude Zehnder. 'They obviously have a problem with risk management. Even when the amount isn't so high it is once more a loss of confidence that casts UBS in a poor light.'     

'With this they are losing a lot of credit that they had regained with effort,' he added.     

UBS has in the past two years tried to rebuild the investment bank that nearly felled it during the financial crisis, when losses on US subprime mortgage-related securities led it to a state bailout.

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. But the weak performance of the unit 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.

UBS said last month it is 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. - Reuters




Tags: investment | UBS | Swiss Bank | rogue trader |

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