Shortly after graduating, Kweku Adoboli landed his dream job as an analyst at UBS, the Swiss-based global financial services company. Money, excitement, and fame were waiting for him—though he could not have imagined just how spectacularly famous he would become just five years later. By 2011, Adoboli was front-page news across the world and had earned himself the now familiar epithet of a ‘rogue trader’ having accumulated $2.3 billion in losses for his employer due to ‘unauthorized trading’ in the firm’s London investment banking division. This gave Adoboli the dubious honour of a position at number 3 in the all time Rogue Trader Top 10, well behind Jérôme Kerviel at number 1 (with nearly $7 billion in losses), but close to Yasuo Hamanaka at number 2 ($2.6 billion) and well in front of Nick Leeson at number 4 ($1.3 billion). As soon as the story broke about Adoboli’s exploits, intense media speculation started focusing on the derivatives trader at the heart of the scandal. Surely, a person capable of such exceptional crimes must be an exceptionally evil person! This narrative of the ‘rogue trader’ in the media is a seductive one in making sense of events like those at UBS. A lone trader going off the rails, committing fraud to make himself rich—what could be a simpler explanation? But as with Kerviel, Leeson and others before him, Adoboli does not appear to have been seeking to profit directly from the unauthorized trades (although clearly he would benefit indirectly in terms of a higher bonus if the gamble paid off). In reality it was more a case of taking an illegal route to try and make the firm more money. Adoboli also hardly fitted the stereotype of the evil genius that many will picture when thinking of a rogue trader. By all accounts the young Ghanaian-born trader was pretty unremarkable. He liked art and photography. He was said to be ‘very polite’, ‘very loyal’ to his employers, a ‘really nice guy’ according to the neighbours. Even his former landlord spoke highly of him. He went to private school and graduated from a respectable university (full disclosure: actually he studied at the University of Nottingham and graduated whilst Crane and Matten were teaching there—but he did not, we might add, attend our ethics class). Still, the damage wrought by Adoboli’s deeds was serious. UBS’s share price dropped by 10% after the losses were reported, and with almost the entire quarterly earnings of the firm wiped out, the bank reportedly accelerated a major restructuring of its business, involving thousands of job losses. Clearly, a good share of the blame for UBS’s losses rests on the person who cooked the books to keep his spiralling losses secret. In 2012, Adoboli was sentenced to seven years in prison, which he is currently serving on Verne Island off the English south coast. But this is not the entire story. UBS was fined £29.7 million by the British Financial Services Authority for failure to control Adoboli. It was the view of the regulator that UBS itself certainly has to take a large proportion of the responsibility. After all, what kind of financial institution does not realize that one of its employees is taking such wildly speculative positions and then cooking the books to hide it? Adoboli appears to have made unauthorized trades at least since since 2008. In the end it was the trader himself who blew the whistle on his activities, not those who were responsible for exercising financial control. Internal and external auditing, back-office controls, risk management, compliance—organizations like UBS have all kinds of systems in place to stop this sort of thing happening. The rating agency Moody’s also pointed at ‘ongoing weaknesses’ in the bank’s risk management. ‘We have continued to express concerns with regards to the ability of management to develop a robust risk culture and effective control framework,’ the agency said in the aftermath the initial disclosures. But this was hardly news for a bank like UBS that lost $37 billion in the sub-prime mortgage crisis and had to be bailed out by Swiss taxpayers. Myret Zaki, the author of a best-selling book on the bank, presented the situation as ‘a never-ending story repeating itself’. ‘I’m not surprised at all about this,’ she told the UK newspaper the Telegraph. [UBS CEO] Oswald Grübel kept advocating an increase in risk-taking. When you have a CEO talking like that, you are not in a climate where you feel restricted as a trader. He was on the side of continuing to make money on the markets, even though wealth management was employing 30% fewer staff for double the profitability. Others, such as Richard Abbey, the senior managing director of financial investigations at Kroll, pointed to UBS’s earlier downsizing as a factor: ‘It’s no coincidence that after downsizing and lay-offs these type of losses are more common. There may not be enough people to physically control checks and balances. It may be institutions are too reliant on computer controls and they are the easiest to bypass’. In many respects then this was a time bomb waiting to go off—with Adoboli as much the symptom as the cause. Some argued it was more a case of ‘rogue bank’ rather than ‘rogue trader’. Taking a broader perspective on the scandal, it is also important to look beyond Adoboli and UBS. As with the recent financial crisis, there is also the deeper-rooted problem of the financial services industry as a whole. According to the Telegraph, ‘unauthorized’ trading could be considerably more widespread than the occasional huge rogue trader incident suggests: ‘experts and insiders warn the amount of risky unauthorised trading is difficult to quantify and often not brought to the public eye unless losses are huge enough to be announced’. The paper went on to quote a ‘senior trader’ at a London bank: ‘People are fired every year for having stuff on their book that they shouldn’t. All the banks tend to know what has happened and why someone has left, but it doesn’t get publicised. It’s usually only a couple of million bucks.’ So while Adoboli may be number 3 in the rogue trader top ten, we never even get to hear about all those entries lower down the charts. Jérôme Kerviel, who is still there at the top of the list, has suggested that companies like Société Générale, his then employer, may even tacitly endorse such trades as long as they are making the bank money. It is only when they start registering huge losses that the controls really kick in. As even the Wall Street Journal quipped at the time: ‘what do you call a “rogue” trader who makes $2 billion? A Managing Director!’ These may of course be little more than jokes, rumours and groundless accusations. But clearly the financial services industry has a major task ahead of it to clean up its reputation and regain the trust of its stakeholders, which the events at UBS made that much harder. All of this suggests that with Adoboli, we did not just have another rogue trader on our hands but, according to some, maybe even a rogue industry.


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