UBS gets Ghana-rrhea: "rogue trader" Kweku Adoboli loses $2 billion

UBS just lost $2 billion and is blaming it on a "rogue trader" from Ghana in its London office. Sounds like a convenient guy to throw under the bus.

Kweku Adoboli's LinkedIn profile describes him as "Director ETF and Delta1 Trading at UBS Investment Bank." For the uninitiated, "Delta1" is a theoretically low-risk strategy similar to ETFs. FT Alphaville explains:
Delta One products are a class of financial derivative that have no optionality and as such have a delta of one (or very close to one) – that is a 1% move in the underlying results in very close to 1% move in the derivative. They often incorporate a number of underlying securities and as such give the holder an easy way to gain exposure to a basket of securities in a single product.

You're not supposed to take huge directional bets. The idea is you sell an index to a client and then you hedge your risk by buying a bunch of stuff that is 99% like the index you sold. So everything is fine unless something really crazy happens and the stuff you bought behaves nothing like the stuff you sold. Think of it as picking up nickels in front of a steamroller. You're making a steady income until -- WHAM!!! Game over.

So either our Ghanaian friend was able to take on huge directional bets with his supervisors and risk managers completely unaware, or, more likely, the bank was systematically taking little risks that would never blow up unless something crazy happened like the Swiss National Bank going Full Bernanke. And when it blows up, blame the black guy with the foreign name.

1 comment:

Negocios Loucos said...

I find it really odd that UBS wouldn't have been told of the Swiss intervention before the fact so that UBS could protect itself. I mean that's what happens on Wall Street. I mean in our case Wall Street would have ordered the intervention, their subjects in DC would have executed and those hurt would be those who don't matter, the ones not on Wall Street. I'm amazed the Swiss didn't protect their own on that deal.

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