UBS’s London Traders Riskier Than U.S., Adoboli Boss Says

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UBS AG’s London traders took more risks than their counterparts in other countries, the former manager of the bank’s exchange-traded-funds desk testified at Kweku Adoboli’s fraud trial.

John DiBacco, who worked in New York, said that during an interview after Adoboli’s arrest last year, he said that he was “surprised” at the large positions traders in the British capital were taking. He took over responsibility for the ETF desk in April 2011 and imposed intraday trading limits of $100 million and $50 million overnight, he testified yesterday at the Adoboli’s London criminal trial. He said he was unaware that was double the prior levels.

DiBacco said that he talked to Adoboli and other traders frequently and had to approve any transactions that exceeded their limits. He sought to lower risk on the team and said he recalled a time in August 2011 when he told Adoboli he wanted “no risk” because the market was too volatile.

Adoboli, 32, is charged with fraud and false accounting over unauthorized trades on which UBS lost $2.3 billion. The former trader admitted risking $5 billion on Standard & Poor’s 500 futures and a further $3.75 billion in the German futures market shortly before he was arrested in September last year, another former manager testified.

“There was a lot of risk-taking happening in London that was of a proprietary nature and not strictly for facilitation of clients,” DiBacco said in the interview after Adoboli’s arrest, referring to risking the bank’s money. “There is a culture that was risk-seeking and not risk-averse.”

Three Years

DiBacco, who took over the ETF desk from Ron Greenidge and was fired by UBS after 13 years at the bank, said that he had no idea that Adoboli had been faking transactions for as long as three years.

When DiBacco read Adoboli’s e-mail confession, he said he had to read it twice because he “didn’t believe it.” Greenidge testified earlier this week that his initial reaction to the e-mail was, “this can’t be true.”

DiBacco said he was asked to resign after Adoboli was arrested. He refused and was fired in January, receiving a letter from UBS saying he didn’t “ensure the ETF desk had adequate supervision” and didn’t investigate the performance “when it showed very substantial increases in revenue, despite the fact that the results were questioned” by the market-risk department.

“I do not agree that I failed,” DiBacco said, as the trial concluded its first week of testimony.

Greenidge testified this week that he was dismissed for gross misconduct after the unauthorized trading was uncovered and that he felt the bank had made him a scapegoat for the loss.

Charles Sherrard, a lawyer for Adoboli, said that UBS became “more aggressive in terms of its desire to make profits” in 2011, while cross-examining Greenidge Sept. 20. Sherrard cited e-mails from Adoboli telling managers about positions he had that exceeded trading limits.

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

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