September 23, 2020

Cayman UBS unaffected by $2 billion loss

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UBS Cayman

The Cayman branch of the Union Bank of Switzerland (UBS), in an official response yesterday, said its clients and operations were unaffected by Thursday’s US$2 billion loss at the hands of a rogue trader.

“It doesn’t affect our assets here or any of our clients,” said a spokesman, asking anonymity.

The bank, the largest in Switzerland, has both a fund-services and trustee division in Cayman, with more than 300 local clients. The bank itself services more than 300,000 worldwide.

“The global-asset management is not affected at all,” she said. “The loss is about the size of one-quarter’s worth of profits.” While the institution may “stumble” with the loss, it will not fall, she said.

The loss marks the second major setback for the bank in the last year, having been hit with a US$780 million penalty from US tax authorities in a landmark case that pierced traditional Swiss secrecy laws.

UBS was forced to hand over the names of thousands of US account holders to deflect civil litigation by Washington, which claimed the bank had aided efforts by US citizens to hide assets from the Internal Revenue Service.

“It doesn’t help reputationally,” UBS said, but the bank would continue operating normally.

UBS said Thursday that a rogue trader has caused it an estimated loss of $2 billion, stunning a beleaguered banking industry that has proven vulnerable to unauthorised trades.

Police in London said they arrested a 31-year-old UBS trader, Kweku Adoboli, in the alleged fraud. UBS declined to confirm his name.

Switzerland’s largest bank warned that it could report a loss for the entire third quarter as a result of the rogue trade, while shares in UBS AG plummeted 8.7 percent to 9.98 francs ($11.41) on the Zurich exchange by mid afternoon.

The case immediately evoked memories of Jerome Kerviel, the trader at French bank Societe Generale who secretly gambled away €4.9 billion ($6.7 billion). The scale of that fraud rocked the global financial industry and prompted banks to tighten oversight rules to ensure such large sums couldn’t be traded unnoticed.

Alleged rogue trader Kweku Adoboli

The Swiss banking regulator Finma said it was in contact with UBS about the incident, which was discovered late Wednesday.

“From the scale of this case you can be sure that it’s the biggest we’ve ever seen for a Swiss bank,” Finma spokesman Tobias Lux told The Associated Press.

UBS provided little specific information, saying the incident was still under investigation and no client money was involved. The unauthorized transactions could cost UBS almost as much as the 2 billion Swiss francs (US$2.28 billion) the bank hopes to save by cutting 3,500 jobs over the next two years.

It comes as UBS is struggling to restore its reputation after heavy subprime losses during the financial crisis that resulted in a government bailout, and an embarrassing U.S. tax evasion case that blew a hole in Switzerland’s storied tradition of banking secrecy.

Peter Thorne, a London-based equities analyst at Helvea, said the loss was financially manageable for UBS. But he said it was a blow to the reputation of UBS and its management, and will likely add to calls for the bank to slim down its investment banking unit.

 

 

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