Adoboli Says Bonus Was Lower Due to Hidden Profits

Kweku Adoboli blamed his $2.3 billion trading loss on UBS AG (UBSN) senior management, including investment-bank co-head Carsten Kengeter, pressuring him to change trading positions.

Adoboli, 32, told the London court where he is on trial for fraud and false accounting that he isn’t a rogue trader and “we wouldn’t be here today” if he hadn’t been pushed to change his market outlook from negative to positive during the summer of 2011. His view up until July 1 of that year was that the market was going to crash, Adoboli said.

“Ultimately after two weeks of fighting against the tide, to have senior managers tell me I’m wrong,” Adoboli said during his second day of testimony. “At that stage I broke, I just broke. So at the point where I should’ve held on, I should’ve had the conviction of my view in the market, at that very point I changed my conviction of the market. So that’s why I don’t believe I’m a rogue trader.”

Adoboli, who was arrested last year, is accused of hiding the risk of his trades by booking fake hedges, causing the Swiss bank a $2.3 billion trading loss. Adoboli testified last week that the bank was like his family and broke down crying on the stand today as he said he didn’t lose his commitment to UBS until Sept. 15, 2011, “at 3 a.m. when they told me they’d called the police.”

Adoboli said he met Kengeter on July 12, 2011, when he came to the trading floor and was introduced to the exchange-traded fund desk where Adoboli worked.

‘Bit Churlish’

Kengeter told Adoboli he had spoken about the markets to Axel Weber, who is now chairman of UBS, Adoboli said. Kengeter and Weber both thought markets would rally. Adoboli said he had changed his position before the meeting and Kengeter encouraged him to maintain the new positive outlook.

“It’s a bit churlish of a junior trader to ignore the words of the global head of the investment bank,” Adoboli said. “So we bought into the dip. As the market sold off, we bought more. But then the market actually did what I thought it would do, it sold off from peak to trough to 30 percent and I held on all the way down.

“I wish I was a rogue trader,” Adoboli said. “I wish I hadn’t listened, we wouldn’t be here today.”

Ruwan Weerasekera, chief operating officer of securities at UBS’s investment bank, testified Oct. 9 that Adoboli booked tens of thousands of real and fake trades during the summer of 2011 that exposed UBS to losses that could have reached $12 billion.

Fictitious Futures

During the week from June 23 to June 30, 2011, Adoboli took a short position and booked fictitious futures hedges that the market would go up. During that time, the risk to UBS was nearly $1.5 billion, Weerasekera said.

Adoboli switched his position July 1 and made investments that counted on the market going up, with the risk to the bank reaching $9.4 billion by Aug. 2 and $12 billion on Aug. 8, Weerasekera said.

Adoboli switched his position again from Aug. 11 until Sept. 13, just before the bank discovered discrepancies, this time booking ETFs instead of futures with the bet the market would go down. He extended the settlement dates of the ETFs multiple times, Weerasekera said.

Adoboli said the desk was encouraged to take more risk and to conduct more proprietary trading to increase profits when they were moved from the cash equities business to global synthetic equities business. He said he had multiple conversations with Yassine Bouhara, then the co-head of the global equities business.

Wrist Slap

“Yassine came to my desk, it was on April 11, he said I’m watching your book, are you going to double our” profits and losses, Adoboli said. “He said you don’t know you are pushing the boundaries hard enough until you get a slap on the wrist.”

Earlier today, Adoboli told jurors that his bonus in 2011 was lower than it could have been because he withheld profits in a secret internal account.

The account, dubbed his umbrella, was a pot of profit he set aside to cover the future costs of running the exchange- traded funds desk where he worked, Adoboli said.

“By putting profit into the umbrella I’m effectively saying I’ve contributed less to this organization than I really have,” Adoboli said. “We knew there would be costs that the book would incur and we had to offset these costs.”

Prosecutors have said Adoboli exceeded his trading limits and booked fictitious hedges to conceal the risk he was taking with the aim of increasing “his bonus, his status within the bank, his job prospects and his ego.” His pay rose from 40,500 pounds ($50,340) in 2005 to 360,000 pounds, including bonus, according to the prosecution.

To contact the reporter on this story: Lindsay Fortado in London at lfortado@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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