UBS Overlooked Limits When Trades Made Money, Lawyer Says

Updated on
Former UBS Trader Kweku Adoboli
Former UBS trader Kweku Adoboli, center, arrives at Southwark Crown Court in London. Photographer: Chris Ratcliffe/Bloomberg

A lawyer for Kweku Adoboli, the former UBS AG trader on trial for unauthorized trading, said the bank had a culture that overlooked trading limits and other rules as long as employees made money.

Charles Sherrard, a lawyer for Adoboli, said UBS became “more aggressive in terms of its desire to make profits” in 2011, while cross-examining one of Adoboli’s former bosses at a trial in London yesterday. Sherrard cited e-mails from Adoboli telling managers about positions he had that exceeded trading limits.

“This is the first example where culture, the practice at the bank you were working for, the risk limits didn’t matter as long as you were making money,” Sherrard said to Ron Greenidge, who oversaw UBS’s exchange-traded-funds desk until April of last year.

Adoboli, 32, is on trial charged with fraud and false accounting over unauthorized trades that lost UBS $2.3 billion. Adoboli admitted he risked $5 billion on Standard & Poor’s 500 futures and a further $3.75 billion in the German futures market shortly before he was arrested, Greenidge said in testimony Sept. 19. He has denied the charges against him.

Risk limits for the bank’s ETF desk were agreed on orally and could be exceeded, Greenidge said. The only written risk limits were “at a very high level,” Greenidge testified.

Gross Misconduct

Greenidge, who worked at UBS for 19 years, said yesterday he was dismissed for gross misconduct because of Adoboli’s trades. He said he felt the bank was making him a scapegoat and had no knowledge of the fictitious trades or an internal account at UBS allegedly created by Adoboli, which he called his “umbrella” and stored as much as $40 million in to cover losses.

Sherrard read out Adoboli’s performance reviews from 2009 written by Greenidge, which said the trader needed to work less. Greenidge said Adoboli was a “great ambassador for the ETF product” and had outstanding performance that year.

John Hughes, one of Adoboli’s former colleagues on the Delta One trading desk, said in a peer review he was “great with clients” and was “certainly the good cop of the ETF team.” His only criticism was that “too many people take his good nature for granted.”

Fictitious Trades

Greenidge, who said he had daily contact with Adoboli after he became a trader in 2006, was one of the first people to meet with him last year on the day he confessed to hiding trades. At the Sept. 14, 2011, meeting, Adoboli said his first fictitious trade was made in October 2008, Greenidge testified Sept. 19.

The culture at UBS changed with the arrival from Deutsche Bank of Yassine Bouhara in 2010 as the co-head of equities, Sherrard said. Bouhara is no longer at the bank.

“The very nature of the bank became more aggressive in terms of its desire to make profit,” Sherrard said to Greenidge. “The mantra was coming from above was revenue, revenue, revenue.”

Greenidge conceded the focus had changed.

“My interaction with the people who came in from Deutsche Bank was somewhat limited, but the culture that they seemed to add was different,” he said. “The message that was coming down to me was still reputation, reputation, reputation.”

UBS would have turned a blind eye to the fake trades if Adoboli had made money, Sherrard said. Greenidge disagreed and said Adoboli would have been fired regardless of the profit or loss if the fictitious trades were discovered.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE