LONDON - As Switzerland's central bank imposed a limit on the franc's appreciation against the euro on Sept. 6, UBS trader Kweku Adoboli's Facebook profile had a plea for his friends: "Need a miracle."
Just over a week later, at 3:30 a.m. Thursday, police in London arrested the 31-year-old Adoboli on suspicion of fraud by abuse of position. UBS told investors less than five hours later that "unauthorized trading by a trader" it didn't identify caused a $2 billion loss.
Adoboli worked on the bank's Delta One desk, a unit that handles trades for clients, typically helping them to speculate on or hedge the performance of a basket of securities. It also takes risks with the bank's own money in arranging trades. It was the same kind of desk as the one worked by Jerome Kerviel, who triggered a $6.8 billion loss for France's Societe Generale in January 2008.
"It couldn't come at a worse time for UBS," said Fred Ponzo, a former trader at Societe Generale and capital markets adviser at Greyspark Partners in London. "The thing is, it's very hard to go through the fail-safes by error. The only way to dig a hole this big is by design. You have to ask the question that if this is a $2 billion hole, is this is a failure of technology and risk management?"
The arrest as global regulators are pressing banks to curb their proprietary trading is likely to revive calls for financial institutions to increase controls on risk and separate their investment banking from their retail businesses. It may also force Chief Executive Officer Oswald Gruebel, 67, to abandon further expansion of UBS's investment bank.
UBS risk officers were examining Abodoli's trades before he informed them of them, according to a person with knowledge of the matter. The bank asked British police at 1 a.m. Thursday to arrest Adoboli, before alerting the British financial regulator or prosecutors, according to two people familiar with the matter. The Financial Services Authority was notified shortly after the police, and prosecutors at the Serious Fraud Office weren't contacted at all, according to two people, who asked not to be identified because the investigations are private.
UBS declined Thursday to say how the trading allegedly lost the bank $2 billion. Gruebel called the loss "unauthorized" and "distressing" in an email to employees, without giving details. No client positions were affected, the Zurich-based company said in the statement, issued on the third anniversary of Lehman Brothers Holdings collapse.
Traders at other firms speculate that UBS may have failed to adequately hedge the currency risk related to an exchange traded fund, known as ETF, or mistakenly placed a currency swap the wrong way, according to executives at other firms who declined to be identified.
Adoboli was a director of ETF and Delta One Trading in London, meaning he was a member of the trading desk. Before that, he worked as a trade support analyst at UBS, according to a profile posted on LinkedIn. Photography, cycling and wine are listed as interests on his Bloomberg biography page.
He graduated from the University of Nottingham in July 2003, earning his degree with honors in e-commerce and digital business, the school said in a statement. He also attended the Ackworth School in West Yorkshire as an overseas boarder until 1998, Kathryn Bell, the head of the school, said in an email.
"He was an able student who made a very positive contribution to the school community," Bell said.
Adoboli is now shown as inactive on the Financial Services Authority's register. His father, John Adoboli, a former United Nations official, told the Britain's Press Association in an interview from Tema, Ghana that the family was "heartbroken because fraud isn't our way of life."
The trader has hired lawyers at Kingsley Napley in London to represent him, according to a spokeswoman. The firm previously advised Nick Leeson, whose $1.4 billion of losses triggered the collapse of Barings in losses in 1995.
Until a few months ago, Adoboli lived in an apartment in London's Shoreditch district, said two neighbors, who declined to give their names because the matter is too sensitive. One of the neighbors, interviewed on his doorstep, remembered Adoboli as a friendly person with a taste for loud parties, who once brought him a bottle of champagne to apologize for the disturbance.
The building, whose carvings proclaim it was built as a "Soup Kitchen for the Jewish Poor" in 1902, was converted into luxury apartments after the kitchen closed in the 1990s. The district faces the Carter House council estate, or housing project, with its open-air balconies full of trash bags, bikes, and colorful towels hung out to dry. The area, its maze of lanes lined with pubs and restaurants, is where Jack the Ripper struck. On the fringes of the financial district, it is a five- minute walk to the UBS office in Broadgate.
There, Adoboli's desk handled proprietary dealing and trades for clients. Such desks would trade in a variety of securities to enable clients to speculate and hedge baskets of securities. For example, if a client wanted to short Swiss equities expecting the franc to rise, the desk would design a trade and use a combination of equity swaps, futures and ETFs to accomplish it. As the derivatives should mirror the securities they track, they would be insurance against market moves and shouldn't carry extra risk for the bank.
"Delta One desks are not necessarily known as risky areas," said Terry Smith, CEO of the interdealer broker Tullett Prebon and of the asset management firm Fundsmith. "But they are known as complex areas."