Sound familiar? Bank takes $2bn hit after “unauthorised trade”. UBS’s shares fell 8.5 per cent in early trading on Thursday after its shock announcement that it had discovered that alleged rogue trading would probably lead to a third-quarter loss. A UBS banker has been arrested in London. Attention is focused on its exchange traded fund business. The Swiss bank said no client positions were affected, suggesting that the trading was proprietary, the sort of activity that many European investment banks claim to be outlawing. The news damages both UBS’s bottom line and its reputation.
The financial damage, assuming the bank was on course for
third-quarter profit of about SFr1bn ($1.2bn), could be a loss of about Sfr500m. That quarter is invariably tough for investment banks; the unauthorised trading will merely make it that much worse for UBS, which is already grappling with the strength of the Swiss franc. Its capital strength makes the loss manageable: its capital should remain well above the 10 per cent regulatory minimum.