UBS's Scandal intro.

1. The Scandal
Midterm Project
1st group
簡育昰/ 陳羿君/ 邱宇⾠辰/ 張博能
UBS rogue trading

2. 21
3 4
Agenda
Background
Comments
SuggestionsImpacts
Scandal’s
Origin & StoryUBS Intro.
Scandal’s

3. Background
01.

4. Background
01.
Swiss Bank
Corporation
Union Bank of Switzerland
UBS’s history
- Union Bank of Switzerland and Swiss Bank of
Corporation are merged in 1998. (UBS Today)
- UBS merged Paine Webber in 2000.

5. Background
01.
UBS’s Ranking in the world
- 2009 ~ 2011

6. Financial Crisis
The
financial
crisis
has
been
daun0ng
for
most
of
the
world’s
banks,
but
UBS’s
behavior
stands
out.
In
August
2008,
UBS
misled
customers
when
it
sold
them
what
it
described
as
nearly
risk-­‐free
securi0es
even
as
its
execu0ves
knew
the
market
was
collapsing.
AHer
the
market
froze
and
investors
were
unable
to
sell
the
securi0es,
regulators
sued,
and
UBS
agreed
to
repay
$19.4
billion.
Background
01.

7. Background
01.
Tax Fraud
-­‐ In
2009,
the
Jus0ce
Department
contended
that
UBS
had
conspired
to
enable
17,000
wealthy
Americans
to
engage
in
tax
fraud.
-­‐ In
return
for
a
deferred
prosecu0on
agreement,
the
bank
agreed
to
pay
a
$781
million
fine.

8. Background
01. 1. Holocaust assets (1930s–1998)
2. U.S. trade embargoes (2003–2004)
3. Indian stock market crash (2004–2009)
4. U.S. discrimination lawsuits (2001–2005)
5. U.S. tax evasion (2005– )
6. Rogue trader scandal (2008–2012)
7. Lehman Brothers notes (2007–2013)
8. U.S. municipal bond market rigging (2001–2013)
9. Arms sales and Indian money laundering (2003–2011)
10. Libor benchmark rigging (2005–2012)
11. Currency benchmark rigging (2003– )
12. U.S. mortgage-backed securities (2004–2015)
13. French tax evasion (2002– )
14. German tax evasion (2004– )
15. Belgian tax evasion (2004– )
16. Timber corruption and Malaysian money laundering (2006– )
Other controversies

9. Origin
02.

10. Origin
02.
On 15 September 2011, UBS announced a 2 billion
dollar loss irregular trading by UBS trader, Kweku
Adoboli, trading the delta one product.
In this section, two critical parts of this UBS’s story
would be introduced. The first part is about how the
scandal occurred. The second part briefly discusses
about the Kweku Adoboli’s delta one trading.

11. Origin
02.
Kweku Adoboli
A trader in the Delta One business.
- Global Synthetic Equities Trading Team in London
- Design ETF for customers
- hedge for potential loss of UBS.
The key person of the scandal

12. Origin
02.The UBS’s Scandal
Adoboli made the fake trading record to hide his
real deal. He has started to conduct irregularly
since 2008.
On 6 September 2011, Swiss National Bank
announced the lower bound of foreign exchange
rate of Euro against Swiss franc, so Euro soared.
Investments who expected Euro to fall lost a lot,
including Adoboli.

13. Origin
02.The UBS’s Scandal
UBS lost 2 billion dollar and Adoboli’s
unauthorised trading was found at last.
To be responsible for this scandal, the CEO
of UBS, Oswald Grübel, and the co-heads of
Global Equities at UBS, Francois Gouws and
Yassine Bouhara, resigned.
Finally, Kweku Adoboli was arrested for his
abuse of position and false accounting.

14. Origin
02.How about delta department ?
Delta One products are derivatives expected to have
the identical price move of underlying asset at the
instantaneously.
For example, A is the derivative of B. If A’s price falls
1% as 1% falling of B, we call A is the Delta One
product of B. Thus, the delta one’s product could be
hedged through this mechanism.
The reason why the delta one’s products designed by
UBS’s traders is popular is that it is easier to use with
ETF and with programming trading. Besides, the
customers could use less initial capital to trade this
product.
[ ]

15. Impact
03.

16. Impact
03. Shrunk in the market share of UBS
!8.14%
1

17. Impact
03. The resignation of the executives
2

18. Impact
03.
3
Lowered the credit rating of UBS
The credit rating agency including Standard
& Poor’s, Moody’s and Fitch Rating, may put
its credit rating into downgraded watch list.
“
”

19. Impact
03.
3
Date rate observe
1998/6/29 Aaa
1998/12/11 Aa1
2001/5/31 Aa2
20074/20 Aaa
2008/4/1 Aa1 *-
2008/7/4 Aa2
2009/6/15 Aa2 *-
2009/11/18 Aa3
2011/9/15 Aa3 *-
2012/6/21 A2
2015/3/17 A2 *-

20. Impact
03.
4
Another heavy crush on UBS
Loss US50 billion during
financial crisis
➜ bailout from the Swiss
government
Suffered allegations
➜ avoiding the taxation
raised by US regulators
significant
reputation
damage+ ➜

21. Comments &
Suggestions
04.

22. Comments &
Suggestions
04.Questions to be thinking about:
What can we learn
from rogue traders ?Q1.
Q2.
How to prevent such scandals
repeating in the future ?

23. Comments &
Suggestions
04.Moral hazard &
Operational risk
To sum up, moral hazards arise because the institutions don’t
take the full consequences and responsibility of its action.
The key point anyone conceal the losses is that they will be
financially compensated for how much money they made for
the bank.
- Moral Hazards
A trader at the institutional level have to be honest and have
integrity. However, they have the potential to make irreversible
financial damage every day.

24. Comments &
Suggestions
04.Moral hazards &
Operational risk
The UBS’s story shows that the supervisory functions have failed
because of firms’ poorly managed admission, and failing
organisation. The ability to track unauthorised and unacceptable
trading performance is not happening in real time.
- Operational risks
The operational risks should be considered in their management
system. However, it is not easy to track rogue traders’ speculation
behaviour if the firms get larger and become more complex.

25. Comments &
Suggestions
04.Lessons &
Suggestions
The UBS’s failure of management presents that the banks
should establish trading limitation, leverage constraints, and
risk parameters. Traders should stay with their money line, draw
downs, loss limits, etc.
The financial institutions should ensure the capital should be
precisely and properly managed. The IT systems and internal
technology should be able to track what is happening in the real
time and prevent potential rogue traders from financial disaster.
There is no reason that taxpayers should be responsible for any
rogues from the traders, and banks.

26. Thanks for your attention.